📈 Markets on Historic Winning Streak – after the chaos of tariffs and “Liberation Day,” the markets are currently on their longest winning streak in 20 years! We analyze what’s driving this surprising bull run and discuss whether it’s sustainable or just a temporary bounce.
🤖 Big Tech Earnings & AI’s Unstoppable Momentum – despite economic uncertainty, the tech giants are doubling down on AI with massive capital expenditures. Microsoft ($80B), Alphabet ($75B), Amazon ($100B+), and Meta ($65-72B) are all betting big on winning the AI race. We explore what this means for investors.
🏭 Inside Amazon’s Robotic Empire – Luke shares fascinating insights from his tour of an Amazon fulfillment center – a half-million square foot marvel of logistics and automation. Discover how these incredible facilities work and why no competitor will ever catch Amazon’s logistics machine.
⚡ The Real AI Bottleneck: Power & Infrastructure – we dive into why energy capacity might be the true limiting factor in AI’s expansion, with grid connections, permitting, and construction taking years to develop. How can investors position themselves for this overlooked aspect of the tech revolution?
🧠 Navigating Market Volatility with Confidence – practical strategies for handling market turbulence without letting fear drive your decisions. Learn why having a plan and responding rather than reacting is crucial for long-term investing success.
👴 Q&A: Portfolio Management for Semi-Retirement – we field a question from Patreon supporter Paul about balancing growth and income in a semi-retirement portfolio. How conservative should you be in your sixties while still ensuring your investments last a lifetime?
Segments:
00:00 Cold Open
01:27 Introduction
03:04 Health Updates & Personal Projects
07:15 Market Update: Historic Winning Streak
11:04 Political Impacts on Market Volatility
14:14 Managing Portfolios During Uncertainty
17:42 Big Tech Earnings Review
20:37 The AI Paradigm Shift & Investment Scale
24:42 Energy Infrastructure as the AI Bottleneck
31:08 Lessons from Early Internet Investments
35:35 Practical Advice for Market Volatility
38:55 Amazon Fulfillment Center Tour Insights
47:31 Philosophical Reflections on Technology & Humanity
56:57 Patreon Q&A: Being a Growth Investor in your Sixties
01:12:06 Avoiding Dividend Yield Traps
01:16:31 Closing Thoughts & Resources
WSW – E79 – what comes after the chaos?
[00:00:00] Luke: There is no way any company is ever gonna catch Amazon on logistics. Now, having seen like this thing in the absolute scale of them, so like we went to a modestly sized fulfillment center, which is only, I think it’s half a million square feet.
It’s such an incredible machine the way these like spaceship facilities operate.
[00:00:21] Kryszstof: had I not sold any of my Amazon shares or Google shares, or, you know, like 20 years later, my material wealth would’ve been massively, massively greater than it is today.
[00:00:34] Luke: the last time the S&P closed nine days in a row was 2004 and. If the s and p closes like a 10th day, which will be tomorrow, Monday, that’ll be like the longest 10 day streak. The last time was 1990. if we get to like Tuesday, that’s like 1968. These are like, this is quite historic times.
[00:00:57] Kryszstof: Trump, one of the things you could say about him is he says whatever is on his mind, and then he does it. That’s what makes him such an anti politician for whatever reason. That’s true. That seems to be true.
[00:01:09] Luke: Just be smart, be diligent don’t let fear take control.
Like have a plan and respond. Don’t react.
For an advertising free version of the show, check out patreon.com/wall Street Wildlife.
[00:01:27] Luke: Hey, and welcome to Wall Street Wildlife with Christophe and Luke in a feature packed episode this week after the chaos of Tariffs and Liberation Day. Markets are currently on the longest winning streak of the last 20 years. That was pretty unexpected. Yeah. That bull, that bull is coming out. If you’re on the YouTubes we’ve had some big tech earnings.
What actually happened? How does, does the world feel different? What does Big Tech think about Liberation Day? plus Katrina and I had a visit to an Amazon fulfillment center. I’m quite keen to tell you about the robots we saw there. That was pretty exciting. And in a brand new segment, we have a very interesting, guest appearance from one of our Patreons, and he’s got a question for us.
We’re gonna field that question live on the show.
[00:02:15] Kryszstof: Amen. And hallelujah. Uh, you know how death has been following me around recently, badge,
[00:02:21] Luke: I do.
[00:02:22] Kryszstof: It came knocking on my door yesterday, and maybe I’m exaggerating a little bit, but I, I’m allergic to Bees stings and I was working, uh, on the house fixing things up, and a wasp got me and, uh, if I showed you both my forearms, it got me on the forearm.
I’m like, Popeye. One of my arms is like, is like Popeye. Now the thing is, uh, I’m also, this happened yesterday. I’m like, okay, no emergency room visit needed. But now as we’re talking, I’m starting to feel my mouth be a little numb. That’s the real scary thing is, is you die if your throat closes. So
[00:03:04] Luke: anaphylaxis Live on the show. Excellent.
[00:03:06] Kryszstof: yeah, I hope I make it through this episode.
And if it’s the last one, it’s been, it’s been, it’s been a hell of a run, buddy.
[00:03:13] Luke: I think you’re gonna be fine. I think you’re gonna be fine. Uh, I, I was just coming forward, I hop from watching episode one of the Pit, which is like the new er, so it’s far more dramatic. I I don’t expect you to die on the show if you got stung yesterday. Well, the er sporting a beautiful bee hat today to mark the occasion to say horny or Honey.
[00:03:31] Kryszstof: Uh,
it says, honey, keep your mind.
[00:03:39] Luke: Alright. Very good. Well, I got stabbed as well today. I gave blood today by the way. Everybody go, go give blood if you can. Apparently today was my 19th donation. You don’t get anything for 20 though, when I go back in a couple of months time, but I electively stabbed myself the other day ’cause I now got one of these on.
Do you know what that is?
[00:03:56] Kryszstof: Oh, is that a glucose monitor?
[00:03:58] Luke: Yeah. A-A-C-G-M, A continuous glucose monitor. so I’ve been reading about, um, thing called Zoe. I. Uh, and it’s too expensive. And I’m like, screw Zoe. I don’t wanna give them a ton of my money. So I just went and bought like two boxes of Libre, two plus from, uh, Abbott. and it’s like a CGM monitor.
You literally have this like applicator with a huge fricking needle in it. Um, but it doesn’t hurt at all. Clog the thing onto your arm. It lives there for like 15 days each one. So I’m gonna do like, I’m doing a one month experiment, but the gadget, like that thing on my arm is literally talking to my phone in real time over Bluetooth and just like updating my blood glucose setting reading. And I’m using Gemini. We’re gonna talk about AI quite a lot. Today’s episode, because. we always talk about ai, but big tech earnings is all about ai. Um, I’m using Gemini as my nutrition coach, coach, so I’m like telling Gemini in one long conversation over the last week or so. Like everything I eat, drink, exercise, giving it my, well, I will correlate it with my blood glucose readings at the end, and I’m gonna try and figure out kind of what kind of foods are good and bad for me and, uh, all that kind of fun stuff.
[00:05:16] Kryszstof: You know, what’s trickiest about science is, you know, uh, causation, figuring out what actually causes what, and I want to say for all you people watching. On YouTube. Badger does look extraordinarily. S felt very debonair today. You more than usual, but I don’t know if this is his new, like, health kick or it’s because he’s sporting some seriously fine, uh, wall Street Wildlife merchandise.
So, uh, I don’t know. I don’t know. It’s gonna be hard to figure out, you know, if you make all these changes and you start following this new, new diet, why, what is the real cause for your wellbeing? It’s gonna be hard to, to tease out.
[00:05:57] Luke: a new, I’ve got a haircut. I looked pretty scruffy last week. It’s probably
[00:06:00] Kryszstof: Oh,
[00:06:00] Luke: the only thing it is. Yeah.
[00:06:01] Kryszstof: okay.
[00:06:02] Luke: Plus it’s uh, I don’t know, maybe the lighting’s different. ’cause it’s nighttime, so it’s currently, oh, it’s Star Wars Day. It’s the 4th of May. May the fourth be with you, Christophe.
[00:06:11] Kryszstof: Oh, and also with you.
[00:06:13] Luke: Yeah. It’s uh, it is, but it’s Sunday. We normally record on a Monday. It’s Sunday. ’cause you’ve had some chaos at home. So we are recording like the night before we normally record.
[00:06:24] Kryszstof: Yes, the chaos was, uh, my deck collapsing a few days before leaving for Europe, so of course. Right. So speaking of next time we record, I’ll be on your side of the pond for much longer this time. So,
[00:06:37] Luke: Yeah. Very good. Very good. How is the weather in Italy? Is it looking receptive to you?
[00:06:42] Kryszstof: I believe it’s a lot chillier than, than, uh, I’ve ever been used to. I’ve only been there during the hot month, so I, I’ll be bundling up.
[00:06:51] Luke: Good. Well, it’s gonna be a
[00:06:51] Kryszstof: Yeah.
[00:06:52] Luke: from, anyway, the, like the fearsome summer of Austin.
[00:06:55] Kryszstof: Oh yeah. No, it, this is, this is the best, this is the best plan ever. So, uh, speaking of chaos, the markets. Right. It’s why people, people, they tune into us. They wanna know, is the thing going up or is the thing going down Badger, is the market gonna go up or is it gonna go down next week? Tell us
[00:07:15] Luke: is so unexpected, right? I did not expect what seems to have happened. I dunno how long it’s gonna last. I haven’t got a freaking clue how to navigate it. What’s going on? So we had Liberation day. at the start of April. I. Tariffs. Things got worse. Like tariffs were way worse, way more complex and way more volatile than anybody expected. you see this like this is the s and p through the month of April and like we were down, well I think we doesn’t show it on here. This is like the closing prices, but I think we were down like 19% at some point from, or at least from like the highs of maybe
[00:07:48] Kryszstof: higher 20. It was 20 something.
[00:07:50] Luke: Yeah, like a serious draw down. Things are looking really gr gloomy now, I mean if you just look at the, the current, the last nine days. The last nine days, the s and p has closed higher for nine days consecutively. that actually is a bit of a record. So the last time the S&P closed nine days in a row was 2004 and. If the s and p closes like a 10th day, which will be tomorrow, Monday, that’ll be like the longest, the longest 10 day streak. The last time was 1990. if we get to like Tuesday, that’s like 1968. These are like, this is quite historic times. Is this a full storm? Like we, we will talk about big tech earnings and I’ve got my opinion about kind of what’s going on and where we’re gonna end up.
But like, I don’t know, like stock market seems detach from reality at the moment.
[00:08:50] Kryszstof: I love, I love this quote. There are decades when nothing happens and weeks when decades happen by my buddy Carl Marx. Uh, you know, sometimes I wanna say, I don’t know how this sound will sound to you, but the most obvious thing, most obvious reason or, um, cause for something, because it’s so simple, people don’t look at it or don’t think about it.
You know, the poor loading leather, the gun that killed the victim is right there in front of you, but you’re looking in all the corners. Trump, one of the things you could say about him is he says whatever is on his mind, and then he does it. That’s what makes him such an anti politician for whatever reason.
That’s true. That seems to be true. And he thinks of himself as this deal maker, right? This hard negotiator. is it that much more complicated than he’s said. He’s gonna negotiate, he’s playing hardball. He starts saying, okay, here we go. And he’s watching the reactions and countries, the world is reacting and that all this really is, is some sort of strange, transparent, global negotiation.
And we’re all witness to it at the table. And one side says, oh, I want this. So stock markets plummet. Other side says, no, you know, and then, oh no, we’ll give you something. Stock markets go up as though, you know, something that’s usually done. Beca behind closed doors over periods of days, weeks is now being done sort of by the hour.
And the conclusion after all of whatever the last call it, three weeks, the conclusion is we’re right back where we started. Because things seem to be sort of progressing in terms of negotiation, right? That that things have been moved, goalposts have changed. So all the stuff in between seems kind of like a play by play, immediate reactions, but nothing else has fundamentally changed.
What do you think of that?
[00:11:04] Luke: I think it’s too soon to make that judgment. Uh, I think a lot has changed. Like if I try and put myself in the shoes of. Maybe, you know, the, the CEO of a medium sized business who perhaps imports, um, like which we assemble into something and I sell something or, you know, whatever it might be. Like, if tariffs are impacting me in some way, like I’m gonna be so conservative, I’m gonna lock down like my expenditure, I’m gonna cut costs, I’m gonna have to pass on some of the costs to my customers and hope that I can retain my revenues. I’m gonna have to eat a lot of the costs. It’s really gonna bite into my own margins. Um, and I, I’m probably gonna put a pause on any kind of discretionary investment ’cause I just dunno how much money I might need in the future to navigate. Like, I’m certainly not gonna be committing to building manufacturing plants in the US if the rules could change like next week, next month in this really unstable, just unknown, volatile political. Economic environment. So I don’t, I think, I imagine most boards are having those kind of conversations and like it’s got a long tail. We’re not gonna see the result of those things for like, probably the earliest, another quarter, maybe two, some, some of these things we might not see for like another year. But like these impacts, I feel like they’re here and I feel like, the main impact is a bunch of folk might find themselves, like with, well, unemployment rising, unfortunately.
[00:12:39] Kryszstof: Yeah, so I, I, I think I misspoke. I said nothing’s changed. That’s not what I meant. I was thinking more in the frame of like, in the negotiation table, the fact that we made a round trip, you know, seems like what I was thinking more is. Uh, the big question I think for a permanent bear market is did something break?
You know, have we eclipsed some sort of threshold after which there’s no real recovery? And right now we don’t know that. Like you said. The other thing I wanna point out though, and this is perhaps good reason to remain cautious like you’re talking about, is bear markets are notorious for having big, strong bounces and then crashing back again.
So I would under no circumstances look at this as though we’ve solved the problems. All I’m saying, I think in some is that we’re witness, we have firsthand seats to watching the negotiations themselves play out with the market voting kind of hour by hour. That’s all I i I see happening and the fact that something might have gotten broken.
Is to be determined because like you’re wisely saying too, when the price hikes show up in, what is it a matter of weeks now? Oh yeah. There’s gonna be, there’s gonna be, you know, big headline news and updates on like, all kind of bear bearish stuff. So we’re not out of no woods yet.
[00:14:14] Luke: Yeah. Yeah. what are you doing? How are you managing your own? Let’s, I mean, put King of the Jungle aside for a minute. I know you keep ’em both aligned, but like your, you know, your real portfolio, your real money, how are you navigating it in your own life?
[00:14:27] Kryszstof: Yeah. Right now I’m doing mostly nothing, uh, except for a couple, a couple of short term. Timed bets, one of which I shared with our Patreons sort of last minute, uh, kind of earnings bet that even if it didn’t go well, I was, I was okay with keeping it. And if it did go well, I was okay to take a quick profit.
But that’s, that’s a tiny little sliver, you know. Um, it’s mostly me sitting there and just letting the cash, you know, the cash buffer, uh, just sit there until something really looks egregiously undervalued again. But we haven’t gotten there yet, so I.
[00:15:10] Luke: That’s interesting. I didn’t know that was your strategy because that, that’s broadly what I’m doing too. we did that Amazon fulfillment and a tour and I’ve been wanting to add to Amazon and I’m really enthusiastic about doing that, having seen like this incredible facility in action, but. Still a relatively expensive stock. Um, and I just, I feel like of probabilities, I’m probably gonna get a better value point if I can just kind of hold my breath for a couple of months maybe.
[00:15:37] Kryszstof: Yeah, though I wanna return to your previous comment. Uh, I think for our listeners and our patons, what I’m doing with King of the Jungle portfolio is really, I think, the best view into really what I ought to be doing. Because remember, my, in, in our private lives, in our personal lives, we have all kinds of other constraints.
That affect us personally, but they, but like, you know, paying for elder parents care, a collapsed deck or whatever, that all of a sudden, right, real life tells me, oh, I wish I could buy the stock, but I can’t because I have to deal with X, Y, and Z. Whereas in king of the jungle, the beauty of it is we get 200 bucks a month, right?
And that’s kind of the window of how do I allocate this stuff, right? And it’s not about the, the, the sheer amount. So how did I spend my 200 bucks? And you saw, or our Patreon saw on our dolphin channel that I bought two companies, made a short-term trade on the third and kept the rest in cash. And that’s kind of honestly the pretty close to how I’m navigating this.
[00:16:49] Luke: Fair enough. Fair play. Very good. Do you wanna chat about those or should we, uh, should we treat as a different episode, like the actual trades?
[00:16:57] Kryszstof: I think we should talk, stay macro for now. I mean the big picture stuff. So let’s talk about the big tech earnings that, uh, we got wind of.
let me share a few numbers, but I’ve got some thoughts around the context of this and I’ll work on your input on this. So we’ve had earnings from Microsoft, uh, alphabet, um, meta now, and I think there’s a few others coming next week. , and in the round, like generally everyone’s putting in like very solid, decent results.
[00:18:05] Luke: Um, I don’t wanna focus on one particular aspect, but just to give you a sense of it, like Microsoft Azure revenue growth up 33% year over year. Um, with AI being like more than half of that growth. Um, and growing Amazon really strong, uh, AWS sales growth up 17% year over year to nearly $30 billion. Um, again, AI being a key factor there. Um, and the, like, the aspect I wanted to focus on was what the hyper, like these guys, the hyperscalers, um, what they’re doing around their CapEx for ai, like where they’re spending money and why, because bit of context, right? So we’ve just had earnings, and earnings were for most of these companies, like up to the end of March, Q1, like some would call it different things, but essentially it’s like the period up until 31st of March, 2025. So this is all pre tariffs and chaos and complexity. And so like, we wouldn’t, even, if. companies, like their earnings are gonna get hit heavily. We wouldn’t see it in those numbers. We’ll see it in next quarter’s numbers. But what is instructive is what the companies are planning, like how they’re forecasting, and also how they’re projecting spending. Because if we go back to that comment I made a few minutes ago, like if I’m a small to medium enterprise, I’m probably locking down my spend.
I’m trying to be conservative. these guys ain’t doing that. most of them are materially increasing their capital expenditure guidance for like full year 2025. So, uh, for example, Microsoft is, um, increasing its CapEx spend on AI to $80 billion, eight zero billion alphabet are forecasting $75 billion. Amazon over a hundred billion dollars. Uh, meta. in a range of like mid sixties to $72 billion. These are like serious checks. Like a large part of that check gets written to Nvidia. Right? Because many of them are buying Nvidia hardware, but they’re spending money on a bunch of other stuff. And like, this is the interesting thing, like these companies, irrespective of what’s happening in the, in the bigger picture and like the political thing, they’re still charging at an ever increasing pace at trying to win the AI race.
[00:20:37] Kryszstof: Yeah, it’s so weird being in the middle of a paradigm shift. I’m sure people, everyone is sick and not sick and tired necessarily, but of course nobody talks about anything but AI these days. But if you actually think about what I. Like that. This is, you know, internet 2.0, I mean in the birth of the internet again, but this time something that is like, we were coached.
It’s almost like we were coached with the internet 20 years ago. Oh, this is what it means to reshape the world in such a drastic, unexpected way. And now everyone’s paying attention and knows the power of what’s around the corner. And so nobody’s holding back. Right? I don’t know if that’s a good analogy.
Back then when people were looking at Amazon expanding from this thing to another thing, many investors were like, what are you guys doing? Like, you are just a bookstore, right? Or, but nobody has those doubts anymore. So it’s like full steam ahead. We can’t be left behind. Uh, all the spoils go to the winners.
And of course, with this stuff we’re talking about actual world domination. Honestly. Uh, you know, these are existential level. Investments. And that’s why I think every company feels like they have no choice. It’s not even like, it’d be nice to have or like look at us being smart and thinking ahead of everybody else.
It’s more like if we don’t, the, the other competitors are just gonna take over everything. It’s kind of unsettling in, in those kinds of ways. Like that’s why I think it’s so, it’s so massive.
[00:22:10] Luke: Yeah, it’s, it’s, it’s big and you’re right. I mean these, we’ve said it on previous episodes. These companies do see it as a threat. Like whoever wins the race, everybody else loses the race. A kind of the better outcome for society, I feel is if like everybody gets there with AI and there are lots of different flavors of a GI, and then maybe we have some sort of like self-regulating ecosystem.
But if like Gemini wins, you know, if Google wins with Deep Mind. Um, and they’re my horse and the race pretty much. Um, I don’t know if that’s a good or a bad thing, but if there’s only one solution, um, because they’ll so quickly dominate the industry with their superior technology.
[00:22:52] Kryszstof: Right. So I guess to sum up, uh, I dunno if we wanna offer any more granularity about the earnings, but basically they were really solid with this, like you were saying, locomotive that is. Full steam ahead. No stopping tariffs. No tariffs. Doesn’t matter. Uh, I was looking into one of my top holdings and the CEO Dane Roberts of Iris Energy, uh, recently tweeted, quote, the 7 trillion Races on McKinsey.
Just confirmed with many, what many of us already knew. AI is triggering a compute boom with data center investment PR projected to hit 7 trillion by 2030. And then he talks about his own company and where it’s positioned. I’ll talk about that in a bit. But, in that 7Trillion 5.2 trillion is related to AI infrastructure, 5.2 trillion.
So, yeah, I mean, when you s it’s kind of staggering. I suppose like how quickly all of this is going to happen with this has, has more capital Luke ever been deployed more quickly in like this single focused domain by humanity ever and how, like it’s magnitudes, right? It’s magnitudes bigger and larger. So it’s like a, even even the, the, the companies that have foresight to invest in the early, uh, internet stuff, nobody, I mean, I don’t know what the relative scale is, like talking about a few billions at most early on.
Then cloud picked up, right? But that got pretty big. But when you’re talking about trillions, all of a sudden, whole, whole different thing.
[00:24:42] Luke: like inflation adjusted, this is like an order of magnitude more investment than, well, almost more than any entity has ever been able to spend before. Like cut these, like the Magnificent seven are called that because they’re just so dominant. Like they’re so huge and their market caps, you know, rival large countries.
so the, and these, the companies today are at such a scale. They can make these incredible, incredible investments. And as you said, like they see it as an existential threat. They see this as a, a race. They have to win.
[00:25:19] Kryszstof: Right, and one point, specific point about that, this is what I, my takeaway from that book I read some time ago, chip War, which I loved and I keep recommending to people. It’s a whole different thing when your own government knows that. I’m speaking here from the perspective of the United States, when the United States government knows that it has to invest in this technology, because if it doesn’t, China then takes over the world, right?
That framework is just a whole different way of thinking. Then 25 years ago at the birth of the internet where, sure, some companies are going to build out all kinds of cool stuff, but never was it like, if you do this, we die as a, as a as or die. Our country dies, right? Or, or, you know, or our way of life dies.
So just a whole different ballgame, and I’m having a whole bunch of these insights and flashlight, these kinds of, I call them like, you know, light bulb moments where even though I’ve said something repeatedly, it takes the seventh time I say it out loud for it to kind of fully like, deeply like, oh God, I get it now.
And I have another one of these. Maybe this is a good segue. To something that, uh, to go back to what Daniel Roberts from Iris Energy was saying. It finally kind of really hit me big time. Um, when I was prepping for this, I’ll, I’ll read further in his quote, in his tweet, he says, that’s why we’re building at Iris.
We’re not waiting to see how things play, how this plays out. We’re already deep in it because the real bottleneck in AI isn’t models it’s power and infrastructure. And then he lists a bunch of technical things his company achieved in the preparing Texas for the build out of these data centers. And then he continues, says, and here’s the truth, if you haven’t already started development, good luck getting grid connected power at scale online much before 2030.
Grid queues, permitting, permitting, construction. It all takes years. That’s why we started in 2018. So I kind of think of this, and this is because this is, okay. Another side note, what I’m talking about here isn’t me like pitching Iris energy, ticker symbol IREN. It’s really not about that. It’s more like stepping back and kind of seeing more clearly than ever why this company is in my top five holdings because it’s so clearly maps onto exactly what the Magnificent seven earnings show are showing.
The CapEx is unabated, and this guy is saying what the rest of the world doesn’t see yet, or what most people don’t really understand yet is it’s not the stuff that’s in front of consumers. The fun with the models. It’s like all of this will require absolutely gargantuan amounts of energy and where you gonna get it when building it out literally takes years and years, you know, the contracting and the permits and getting the land and stuff, right?
So you could have all the demand you want from Meta and from Tesla and from you know, all the right, but it’s not available. Like, in other words, that’s the bottleneck. So I wanna position myself as an investor if I buy this thesis, which I completely do based on the numbers and everything we’re talking about, what companies are gonna be forced into being in the right spot at the right time, right?
Because of these trends unfolding. And to me that’s like, you know, that’s Iris Energy is one example of that in, in my thinking about it. What’s extra curious, maybe this is a little pitchy sounding, but what’s really curious in this moment is that the market is not given credit to Iris the company itself.
And it’s interesting to think about this because no contracts have actually been signed, right? They’re cap, they’re, they’re just in the build out phase, right? And that to me, again, is, is what smart investors do in the sense it’s the whole go to where the puck is going. Rather than sort of waiting for, you know, the, the, what’s it called, the evidence to already be in hand once the shares have already been bid up, you know, magnitudes.
So what I would like to hear from you in this sort of, you know, counterpoint is like, you hear me kind of now pitching this company because of these trends that I’m going on about what’s the counterargument here, you know.
[00:30:04] Luke: mean, there isn’t one, right? I, I totally support that idea. but I think back to my own recommendation for seven investing years ago, I think I was too early with the idea really of new scale power SMR, like one of the main applications in my mind then, in my thesis two years ago was you need power at the point where the data center is.
’cause you’ve gotta have the energy to power these things. And the US recognizes this, right? I think there was something in the news just last month, the Department of Energy. Have put out like a RFI basically said to like a whole bunch of companies, like work out how you can supply power at this sort of gigawatt level to support the data centers of the future.
And there’s a whole bunch of companies. Interestingly, new scale power wasn’t in that list, so kind of a fail there. But a whole bunch of other companies looking at other ways of using, , new, like different forms of nuclear power and other power sources to try and provide, like, support the infrastructure that the US recognizes It needs to keep parity with China.
I.
[00:31:08] Kryszstof: Exactly. So I think, uh, here’s for our listeners the way, what I’m, what’s, if you could see inside my mind, I’m, I. Going back to the early internet again, and I’m trying to remember what it felt like during that moment, right? And remembering that had I not sold any of my Amazon shares or Google shares, or, you know, like 20 years later, my material wealth would’ve been massively, massively greater than it is today.
Even though there were all these drawdowns, painful drawdowns when people panicked and bubbles were bursting, right? And all this, and the other thing, stay focused, I suppose. Here’s the preach, here’s the sermon. Stay focused on the fundamentals that are driving this now even greater or tsunami.
[00:32:06] Luke: But again, though, we say that with hindsight, like I totally agree with you, but at the time, it was probably quite hard to tell the difference between like an Amazon and a pets.com. Like one was selling books and one was selling like pet stuff and one like completely failed and blew up, and then the other became one of the world’s largest companies. like, how do we do that analysis today and figure out who the future Amazons are? Not the pets dot coms.
[00:32:34] Kryszstof: Well, that’s the Right, that’s a great question. I think in, I mean, back then, the reason that bubble burst was because people found out there is no revenue continue coming in. It’s just like, you know, versus you. I think the greatest alpha in the end comes from people actually doing the work in terms of research and saying is are things being built or not?
Is this an idea? Or is are, are people actually putting in man hours to do this thing? So the magnificent seven, we know they’re already building stuff. That’s not the point here. But in terms of emerging companies, and you know, when I look at iron, literally, literally they are breaking ground in West Texas and every day there’s drones flying around and showing you that things expanding.
That’s one of these proof of points, you know, versus, I don’t know, what would be an equivalent, like some sort of fancy gadget that runs on AI that solves some problem. That’s really nice to hear about. But that’s very different than like boots on the ground with shovels.
[00:33:43] Luke: Yeah. Yeah. I, there’s lots of ways to play this if, and I think we are now seeing like the first signs of the real economic value of this stuff to like the whole world. So I, I saw in the news in the last few days we’ve had announcements from companies like Duolingo, Klarna, UPS, Cisco, even that they’re, they’ve, they’ve, they’ve laid off people in the past.
They’re replacing those roles with AI and automation. Like they’re really using this stuff now. And we we’re not even talking here about. Like agents AI for real to um, like run their organizations much leaner, much cheaper. ’cause people cost is incredibly high. and uh, and you don’t have like the labor complexities and all the other stuff.
So this is how companies wanna operate. I mean, it’s not good if you are in one of those jobs, but it’s really economic value to the world. and even if the companies, if these companies like don’t lay off more people, the people they do have, they’ll be able to do a ton more with, like, everyone will become like a manager of many AI and maybe there’ll be some sort of super AI coordinating the work of all those, like the middle, the human middle management.
But who knows how this is really gonna shake out. But my main point here is this isn’t pie in the sky. This is real. if it’s real and there’s like dollars to be made or dollars to be saved, and we’re seeing now that there truly are. Then this is, this trend is like here to stay, and you can play this by owning like the guys that are building the factories, the guys that are making the semiconductors, the guys that are supplying their energy. Lots of different ways to play this boom, but this boom is not like gonna, this isn’t a bubble that’s gonna pop anytime soon.
[00:35:35] Kryszstof: Yeah, that’s the right, that’s the, I suppose, main takeaway. And also the recent job numbers were pretty strong. you know, can we go full circle again to how we started the show and where we’re at now? I think I wanna say this. Feels like to me the vol volatility will not go away. I would not be surprised if the market crashes 10% in the next month.
No surprise whatsoever. Or 15% right, based on whatever next negotiation tactic. But now I’m not gonna be surprised if it rebounds against strongly because of these trends that are now in writing. The data is clear and what is cap? What is growth? What is economic growth in the history of humanity? But these moments where all of a sudden new things are capable of being built, and that’s never been, what’s it called?
More sizable than in this exact moment. So, you know, a major catastrophe will be probably some sort of self-inflicted wound, you know, like a recession caused by too much gamesmanship in terms of political theater or some kind of. Dangerous war or something. But for us investors, it seems like stay put and take advantage of the volatility.
That’s what we talk about when volatility is your friend. When you have a big drop, take some bites, right? If it drops further, that’s okay. You still got good value, right? If it rebounds, maybe take a little bit of profit. So, I don’t know, this is a, maybe a little short timer ish stuff, but I, I myself try to take advantage of these ups and downs rather than in the sense do doing nothing.
[00:37:24] Luke: And it, and, but if you, you know, if you are scared of the volatility, end of that kind of spectrum, like you could, you, yeah, you can do what Christophe just described and try and take advantage. You know, maybe trim some stocks when valuations feel like they’re really high. Maybe add to some things when valuations feel more reasonable, but like the only way you can really like damage your, your portfolio like existentially is letting like the fear translate into like taking a, a bad action.
Like selling when things are down, getting out of the market, never really getting back in because you miss. Like that one day a few weeks ago where the market was up, like nearly, what? Some crazy percentage digit, um, how much was it up for? Like, like eight or 9% or something in a day? Something ludicrous. Don’t remember. Anyway, it was like, uh, it was, uh, unprecedented. Pretty much. Um, you know, you miss one or two days like that and that’s gonna damage your returns for like, probably this decade. So, yeah, like if you do nothing, doing nothing is not necessarily thing. Right. Just be smart, be diligent don’t let fear take control.
Like have a plan and respond. Don’t react. Yeah. So I said I didn’t add to my Amazon stock even though I wanted to. Should I tell you a little bit about why I really wanted to. Yeah. Have you, so Amazon fulfillment centers, like we’ve all probably heard of them and probably something that arrives as our door pretty much every day.
Suddenly, if you, if you live where I live, there’s like an Amazon person showing up pretty much every day. Um, so, uh, Amazon do only found out recently, they do free 90 minute fulfillment center tours. So I signed up Katrina and myself. We went along to one of those last week and God, really interesting.
Highly recommend it.
[00:39:23] Kryszstof: Did did like a hard hat and goggles. You know, when people visit construction sites.
[00:39:28] Luke: you had to wear a headset with like a microphone because it’s loud in the, in like the work environment then just you, you know, you chill and you have a tour. interesting. I dunno how deep you want me to go on this. Lemme get some headline stats just so you’ve got a kind of a sense of how, how ridiculous their infrastructure is.
And really like my main, my main takeaway up front. There is no way any company is ever gonna catch Amazon on logistics. Now, having seen like this thing in the absolute scale of them, so like we went to a modestly sized fulfillment center, which is only, I think it’s half a million square feet. So just to put that in context, so to walk with a, like around, there’s like a kind of gangway around the outside this huge warehouse, it’s a mile perimeter.
So if you are, you know, 1.6 kilometers just to walk around like the outside of the building and the building has, I think five floors, like the first floor, which is like loading bays and where trucks come in and then stuff goes on some, some crazy, like hundreds of kilometers of. treadmill, things like conveyor belts up to different floors where they’re sorted and picked and packed and all these amazing things happen. and like Katrina said to me at one point, like, where’s where does stuff like stored? Like nothing really gets stored. It’s such an incredible machine the way these like spaceship facilities operate. And we walk down the whole production line process of, of how these things are. Oh, by the way, you know that I said that one’s half a million square feet, five floors, that’s like one of 30 fulfillment centers in the UK and one of a, I think 185 fulfillment centers globally.
And that’s a small one. Like there are, there are some that are like two or three, four times bigger than that. So like, do you know the, do you know the process? Are you familiar with how the robots actually work and what, like how Amazon do this stuff?
[00:41:27] Kryszstof: I mean, kind. Uh, I think I do. Like I saw clips. I just, I dunno how different it feels seeing it in, in person, you know, the massive scale you’re talking about. But I think I have a decent idea of all kinds of machines just moving to the next part of the chain and everything feels like a. I watch a lot of eos, you know, battery making videos like how battery’s put together, so I kind of picture that, but like massively bigger.
[00:41:58] Luke: there’s a, this really incredible process that I, I understood, but seeing it in operation at this scale really blew my mind. if you are, if you are say, selling, I don’t know, like hats, right? And you’re using fulfillment by Amazon, Amazon say, okay, send us like a thousand hats for this month, Christoph. so, okay. Like a truck will come and pick them up, or you’ll get them to the Amazon warehouse and, you know, maybe 10 boxes of hats come down the conveyor belt to like the first station. And the guy just like gets everything out of your packaging into these like plastic crates. And they go on a conveyor belt and then whoosh, they’re into the system. And then these crates go to like these different floors with these packers. Now it’s so interesting, like the packers and the pickers are like these two sides of the process. So imagine you are the packer, I think that’s the right term. Like this conveyor belt, this car on the right arrives full of christoph’s hats as might like, maybe 10 hats in there.
And might, you know, maybe he sent a thousand. There’s like a hundred of these crates were loaded with hats. Like the shelf comes on a robot to the packer. And then he, he, he gets instructed. Okay, like load. Like three, two units here and two units here. And he’s like filling the shelf up almost randomly. And these shelves are like moving past this station where hundreds of these guys are all loading goods into these shelves. And then your hats are, then they came in, like I say, as a box of a thousand. There’s now like a thousand individual hats on individual, like mobile shelves just moving around this sea, over four floors of the warehouse all messed up and mixed up with every other item. And like the power of AWS is, it knows where every hat is at every point in time. And these, these shelves are moving around. So when I place an order for one of christophe’s beautiful like bee hats, and maybe I order like some toothbrushes and some other stuff as well, pickers, like this stuff is in motion constantly. The hat, like, uh, if, if there happens to be a shelf with like a toothbrush and a hat on it. Then optimally AWS will try and bring those two things together, but the pickers then are taking like the items for my thing and putting it into like another carton. essentially my order gets assembled but the people aren’t walking anywhere. It’s like all the stuff is moving around the people inside this giant like football pitch sized kind of cage environment. which is why it’s safe to kind of walk around ’cause you’ve got conveyor belts over your head and you’ve got all the robots in this kind of enclosed, like massive section in the middle of the floor. and then it goes off, you know, get like enveloped up with this small items or boxed up at these bigger items and then it’s out the door. And I think the record for my local center was 70 minutes, seven, zero minutes from an order being placed to that order being in the customer’s hands. Um, and that’s probably gonna be like a common or garden time. Once drones are introduced and Amazon now have permission, they’re, they’re like doing drone testing in the US and I think in some parts of the uk. So, you know, hopefully that happens soon. And then maybe we’ll have like 17 minute deliveries rather than 17 minute deliveries.
[00:45:16] Kryszstof: I have so many questions, and also, uh, a really strong, overwhelming desire to start philosophizing, which I’ll sub, I’ll, I’ll, uh, sequester for the moment. I’ll spare you for the moment. First question is, how do you see that factory, let’s say, I don’t know, call it a year or two years from now when one of Tesla’s AI optimist, robots \becomes another part of the puzzle.
What happens? What, what does that factory look like? Are all humans gone at that point?
[00:45:54] Luke: Um, maybe those picker and packer rolls are, are robotic rather than human because Amazon is trying to streamline the process. It’s, it, it’s probably two, two things in response to that. Like, I think you are always gonna need humans, so, no. Interesting. Right, so there was a role called an amnesty worker. So I described this kind of football pitch size cage with thousands of these like shelves moving around, like some kind of like horror movie of the cube or something. All these different like deadly things driving around full of hats and all sorts of other stuff. Well, sometimes. dunno, something may not have been packed properly and something will just fall out.
’cause these shelves are relatively tall. They’re like, I dunno, maybe two or three meters high uh, something that falls out onto the floor, well then the robots can’t run over it. So they sort of see it. But a human currently has to go in there and amnesty worker. And then there’s all sorts of devices they have to wear with sensors and they have like a kind of iPad thing and it tells them which path to walk to get to the thing that fell out of the, the mobile shelf. that, and the robots within three meters of ’em, I think all kind of come to a halt when they sense that like the human is walking through that area. I guess they walk through kind of relatively slowly and it’s like a kind of, you know, rolling roadblock. Well, I guess if you could send an optimist robot in there to do that amnesty job and like pick up the thing that fell over or do some like minor, know, repair jiggle something, if it got a bit stuck or something like that, then that’d be more efficient, right?
You take humans out of the way there.
[00:47:31] Kryszstof: as I listen to you talking. It’s just clear to me that the science fiction stuff is already here, but the, what’s it called, the final end game of it all is also like quite visible already. It’s just gonna take a little bit longer to kind to, to sort of add the robots, at which point we start talking about the more philosophical existential stuff.
And in this case, it’s like what happens when we actually solve via scale and robotics? The problem of buying and ordering stuff where basically humans no longer have anything to do with it. If you take a dystopian view of it, you might think, well, you know. Oh no, humans have been displaced. And what are we gonna do with, you know, it’s like, um, I think of limited, maybe nostalgic view.
But then if you take the other view and think this isn’t what humans are for anyway. There’s no, like, humans are not, well, humans are weird creatures because we’re capable of doing anything. There is no one thing that humans are. But I would argue one thing we most certainly are not are box packers, right?
Because that’s boring and there’s nothing involving creativity. So I like your point where maybe from an investing standpoint that what you’re sort of investing when you invest in a company like Amazon is like they’ve clearly won. Like you said, no one’s gonna catch their logistics machine because it’s just too domineering.
So then all brick and mortar type activities, all like. Who’s gonna pay for something really when you’re gonna get it much cheaper and faster within, call it minutes from something like Amazon. And you know, like most things are gonna go away.
[00:49:37] Luke: Yeah, well, when, you know, fulfillment by Amazon, they’re trying to serve other companies that just want to use their, you know, like fulfillment as a service. Uh, and you’re right, like it’s the, it’s not a dirty job, but it’s like a rum, you know, production line style job. Uh, interestingly, um. They gamify it a little bit.
Like the, something I, I didn’t mention, it almost fascinated me. Like even their non-operational processes like and HR and stuff like that, even that’s been automated and optimized to some crazy degree. So for example, um, like if you are working in one of these like, fairly mundane jobs like picking and packing and the robots, there’s like a light just telling you what to put, where you’re just like, essentially like a flesh and blood like robot in the, in the process.
Um, like the, the thing will stop every hour and it will tell you to do certain exercises ’cause it knows you haven’t like, moved in a certain way and it’ll give you like, you know, do some star jumps or whatever, like stretch this, stretch that, um, to help take your mind off the kind of mind numbing ness of it. There’s like a game you could play. So you could maybe be like, challenging the guy next to you or like. You know, like a whole team challenging another team or a fulfillment center, challenging another fulfillment center to, you know, like almost like, you know, play some sort of competitive game, but driven by your efficiency at the process.
’cause you’re trying to engage some cognition, I guess because they had like employee burnout because of the nature of the job. So they’ve, yeah, like they’ve optimized everything to death, a lot of the humanity outta it. But clearly like the direction of travel for the company is to get the humans out as much as possible.
[00:51:26] Kryszstof: Okay, now I can’t help myself because you said like the, you triggered my philosophical, you just triggered me badger. Uh, this is what I’m about to say. Extraordinary complex. And I’ll probably end up talking about it in over multiple episodes, but it’s so important. Um, it’s this view. There’s one philosopher that’s famous for his critique about technology, Martin Heiddeger.
Um. But his worldview is very complex to understand, so I’m not gonna do it any justice. But the thing is that he thinks of technology not as, let’s say, each particular gadget or gizmo and new invention. It’s more like a way in which the world operates. And when you have, call it technology, big capital T technology as the main dominant view of the world, which is what we have now and have had I guess for about 150 years or so, then the, the, that worldview is the worldview defined by everything being seen as a resource to be optimized.
This is not, and just before people draw the wrong conclusions, it’s not to say that technology is necessarily bad. Forget your judgment. Good or bad, just the world we live in, tech, the technological world. Things like humanity itself is not, there is no saving humanity because everybody is being optimized.
A quick, fun fact, I mean to, to make this clear at this point, clear, we have departments called human resources, meaning humans are seen as resources. What do you do with resources? You optimize them, you make them more efficient. There’s no inherent value to a human besides the resource bit. So when I see things like these kind of gamification, incentives, I’m like, on one hand that’s cool because at least there’s a little bit of care there, and you don’t want your employees going, you know, insane.
Like Chinese workers, you know, doing repetitive tasks that just kill your soul. But on the other hand. Uh, with this critique of technology, what I’m saying is this is at best a temporary like bandaid, and it’s so clear that humanity as a whole, having solved this particular problem of efficiency, will need to find different ways of being.
And what that is remains up to date. That’s actually what philosophers do, is we kind of like ask ourselves, okay, what follows the technological age? So I’m not, I’m sort of like left hearing your story, Luke, I’m left with this feeling of bittersweet, like it’s a very ambivalent feeling, like, yay for humanity, for figuring out this crazy complic building and figuring out these efficiencies that are just mind blowing.
And what lies on the other side of this in some sense is dystopian. But in another sense, like what if we then open up all parking lots and shopping lots and we build like museums and places for musicians, right? Where before we were still stuck figuring out these efficiency things. So it’s not all dark and gloom, it’s just very complicated.
[00:55:05] Luke: and we’re, I think we’re both optimists about this generally, but we recognize like Amazon is a, like they employ over one and a half million people globally. Like they’re a big one. be optimizing and presumably either, well, 10 Xing the amount of product they sell with the same number of people, or having like two x the amount of product they’re selling with like a 10th of the people. but there’s so many other industries that are gonna get hit by technology in the same way. Like we talked about driverless trucks last week’s episode, right? That’s like many, many workers in North America, hundreds of thousands of truck drivers plus in North America. PAs, personal assistants. Like I can’t wait until my phone can be a fully functional, virtual assistant, but there’s like another ton of people globally and countries that have, you know, built them, them, their exports to a large extent around like being the customer services for the rest of the world. big impacts, but I’m optimistic, but, um, eventually if we don’t blow ourselves up, this leads to a better place.
[00:56:14] Kryszstof: Yeah, and this is, uh, sort of a indirect pitch for Tesla. It reminded me why when Musk makes, you know, a bold claim about just the immense amount of value that these robots will bring to something like this, to me, they’re gonna fit. Into these kinds of operations and just make the whole thing go. So that’s, yeah.
Um,
[00:56:39] Luke: Alrighty, Gus stuff. Well, anyway, let me, let me close it out by recommending the Amazon Fulfillment Center tour. We’ll leave a link in the show notes, but just go check out amazon tours.com and I assume they’re doing these in many countries. Do recommend it. Good, good use of a couple of hours, especially if you’re a shareholder.
[00:56:57] Kryszstof: all right. We have a exciting new segment.
[00:57:00] Luke: We do. Uh, and we have playing Guinea pig, one of our OG Patreons Paul, who’s got a live question for us. Um, Paul submitted this, uh, the other day. You and I have been chewing the fat over Paul’s question and we’ll get into it. But before we do, let’s hear from Paul himself.
Hi, Monkey and Badger. Greetings From down under, I’ve got a question mainly directed at Badger relating to his investment strategy. I’ve been, semi-retired for two or three years now, age 63 now. Need my investments to generate some income to live off, but need growth and need to make sure the investments last the rest of our lives.
I’ve got 60% of my money in growth assets. I’ve got, cash covering five years worth of living expenses. I also generate a lot of dividends. About 60% of our living costs are covered by dividends, so very conservative on that front, but I’ve also got about 8% at the moment , in REITs. And about 10% in monopoly duopoly type businesses that are not gonna grow much, but throw off good dividends and I think provide a bit of balance in the event we go into a bad bear market.
Badger, you’ve got far more percentage in just in growth assets. So I thought that might be a worthy topic for you guys to discuss for people in our circumstances. Thanks very much for taking the question.
[00:58:22] Luke: Excellent. Paul, thank you. Great question. And, uh, Christophe and I really enjoyed, uh, listening to that and kind of fathoming out what advice we might be able to give you. Well, first of all, actually, I. No, this is not financial advice, no financial advice. But if this was kind of our portfolio or our situation, maybe the waiter think about this is like, how would we manage it? So let’s quickly recap. So Paul’s portfolio, he says some of the numbers are a bit conflicting, but let’s try and sort of make a few, a few broad assumptions. He’s about 60% growth stocks and he actually told me in a DM after sending in that question, um, he has over 60 individual holdings plus a bunch of funds.
So pretty big portfolio, like broad portfolio. He’s got enough. Dividend stocks that cover 60% of his living costs, which is awesome. That’s really, really great. about 8% of his investments in real estate investment trusts, and about 10% in what he describes as being monopoly, duopoly type, mature businesses.
So kind of like safety stuff. And then he is also got five years of cash on hand. Um, he’s in his sixties. He wants growth, but he wants his investments to last the rest of his life and he considers himself as being very conservative. So your immediate reactions Christoph.
[00:59:44] Kryszstof: I think Paul has set himself up well, conservatively. And I’m naturally much more risk tolerant than he is. So, on one hand, congrats Paul for getting yourself to this really stable, well thought out spot. And there’s a whole bunch more that I myself would do without necessarily, uh, compromising the, your desire or need to remain conservative.
So I’ll start with my, uh, maybe the first thing that came to mind was, was, and I don’t know this, uh, uh, but I assume you don’t have Bitcoin, uh, in your portfolio. And the reason that I’m thinking that way is because when I see a shareholder having 60 stocks, to me that’s a lot. There’s a lot of redundancy there.
I. Badger you, you’ll probably talk about, you know, this concept of diversification, but that means in my mind I could take something like, let’s say five random number five of those stocks that aren’t really changing much about how my portfolio’s constructed. And now I add an entire new asset class to the portfolio.
And in this case, I’m nominating Bitcoin for that job. Why? Well, because, uh, it seems to serve the pers purpose of actually diversifying your risk because it’s a whole new category. And it doesn’t hurt that Bitcoin is basically the best performing asset class over the last whatever, 20, 15 years since, uh, since it was, since these metrics were tracked.
It has a compound, the annual growth rate of between 70 and a hundred percent depending on the years you, you track it. And one other thing I discovered looking into this is there’s something called the sharp ratio, which is, which basically measures, uh, it takes into account the volatility of an asset measure and adds it to, or compares it to its growth.
And so you wanna be paid for extra risk that you take. And so the sharp ratio measures that, are you getting paid enough for the risk you took? And Bitcoin has the highest ratio, which is best because it’s saying, even with the volatility that was involved in that class, you got paid way more than expected.
And so that ratio is really, really solid beating all other asset classes. So this isn’t, you know, this isn’t me pitching you Bitcoin again, per se, but it’s saying, asking you to consider, well, if your goal is this. To remain diversified and you already have plenty of diversification, why not add something that extends your diversification and also has a stunning, uh, track record?
[01:02:42] Luke: I’ve got a bit of a sidebar on this ’cause you threw in sharp, uh, in the show notes. So I’ve got a question for you. So I’m just going to, I’m gonna ground you with a bit more on what Sharp is. It’s like a measure of, for a portfolio of an investment or an asset, like it’s kind of like how volatile is it?
So even if something like my port, I’m beating the market, my portfolio is going up, and if I have a good sharp ratio, it’s like I’m going up smoothly. And if I have a bad sharp ratio, I’m like jagged lines and all over the place. So a sharp above one is considered good, like two is really good, three is excellent, one is suboptimal.
Do you know what my sharp ratio is?
[01:03:22] Kryszstof: No, tell me.
[01:03:23] Luke: Point oh five
[01:03:27] Kryszstof: Oh, oh five.
[01:03:28] Luke: It’d be terrible. Yes, all over the place. Massive like years where I’ve doubled my portfolio in one
[01:03:35] Kryszstof: Yeah.
[01:03:36] Luke: then years where I’ve got like smashed. So
[01:03:39] Kryszstof: Right. Well, okay, so that’s, that’s really interesting because, this is the surprising thing. I really don’t mean this to be about Bitcoin, but I think Paul, for you, it should be interesting to see these numbers next to each other.
Most people, when they think about an asset like Bitcoin, they think, oh my God, it’s a pure casino. It’s just gambling. But in it, in fact, in actual mathematical fact, it’s more steady, so to speak, and more smooth than the s and p 500, though it’s close. ’cause the s and p 500 is between 0.7 0.9, but it’s so much better than something like gold, which is at only 0.3.
And then you have bonds that are between around 0.5 and real estate around 0.5. And so it’s just goes to show you that, I think unless you, until you look, you know, dig under the hood so to speak, you might be surprised at what’s out there and what the actual returns have been. So, uh, yeah, I mean, I was kind of surprised because most headline numbers are like, oh my god, Bitcoin dropped 80% at one point.
Sure, but that’s made up way that you know, that it made, it made up that and more all in adjusted, all with an adjustment to the risk you, you took.
[01:04:52] Luke: Okay. I think there’s some bigger things we should say about Paul’s portfolio though, rather than just like, maybe like trim some things and add some things because I think I, so here’s my sort of biggest bigger pitch on what’s going on here. I think there’s a, uh, there’s a conflict here because Paul is, in his sixties, he describes himself as very conservative. He’s got
[01:05:15] Kryszstof: I.
[01:05:15] Luke: 60% of his portfolio in growth stocks like that is not traditionally considered a conservative portfolio. That’s, that’s a pretty like wild portfolio I think that’s, Paul’s obviously come at this, how many years in the market. He has probably a lot if he’s got a lot of experience, if he’s got this sort of real mix and broad array of companies that he’s kind of picked up along the way. Um, and I think that risk is offset to a large extent by the fact that he has such a big cash buffer. Like five years of living expenses is fantastic. Like I, I try and right now I’m trying to have something similar to that myself. ’cause if thing, even if things go to absolute hell, I know at least I’m gonna to pay the bills for like, the best part of a decade. and Paul is also, I. Insured to some extent in, because he has 60% of his like outgoings, monthly outgoings covered by dividends, which is a fantastic place to be as a dividend investor. And that’s a place I want to get to myself over now, maybe by the time I’m Paul’s age, but he’s still got 60% of his portfolio and growth stocks.
So that’s a lot like, I think you have to sort of recognize that. Um, but also I think 60 stocks is a lot of stocks. Like you are, you are not, I dunno at what point it crosses over from being like, like if I owned 15 companies, that’s like a growth portfolio and I picked those companies presumably, and, and I’m like, I know what they’re doing.
I’m tracking them at some point. And I think 60 is definitely across the line. And it’s the, I dunno where the number is, like 2030.
[01:06:56] Kryszstof: actually Bad Badger. I think I got the number for you. It’s somewhere around 20 where the threshold, I don’t know what the exact calibration is, 96% or something, where everything past 20 becomes like only incrementally more diversified. I.
[01:07:12] Luke: So, yeah. Yeah. And so let’s land this point though that it is, you’re right. That, um, you don’t get any additional protection beyond it’s, let’s say it’s 20, it’s probably something like that. I agree. not getting more diversification and you’re just creating more complexity and confusion.
You might as well just own an index because you basically are an index when you have that many stocks. Like, and it’s just complicated. Like you can’t possibly track 60 companies. It’s like you, you’d know be to do that. So maybe, you know, maybe Paul didn’t tell us when he shared the question. he’s got like the large majority of his growth investing allocation in a much smaller number of companies, but he’s literally like broadly. equal weighted companies. Well, that’s, that’s just like a sanity. I think I would if I, again, not financial advice, you know, Paul, you’ve, you’ve been doing this for a long time, presumably, you know, you know what you need to do. But if this was my portfolio, I think I’d be looking to identify like my best names, maybe the best half to start with as a first phase, then start to slowly consolidate outta like your least favorite half into your more favorite half.
[01:08:26] Kryszstof: Yeah, that’s similar to what I was thinking, except I, I would even get a little bit more conservative at the start. If you have 60, my goal would be to trim 20,
[01:08:37] Luke: Right.
[01:08:38] Kryszstof: because 40 is still,
[01:08:40] Luke: Yep.
[01:08:40] Kryszstof: still a lot. But with those 20, now all of a sudden, it’s kind of counterintuitive what I’m saying. I would actually, in order to diversify, I would actually potentially buy something like, as I was saying, a Bitcoin because it’s a different asset class.
But then I might even do something like take the, take the value of, let’s say five of those and then create a sort of sub portfolio. I would call it my mini call it, uh, call it 10 X portfolio, where I know that I’m gonna make 10 bets. One of them will probably do really well, and the other nine I could easily let go to zero, right?
So you have a one in 10 chance, but that one that’s gonna make it will way outpace the gains you would make, you know, from keeping the the others. And now you’re even more diversified because you have, for example, an investment in, you know, the next best thing, whatever that might be. And you’re not just a gambler betting it all on one, you’ve really determined for the sake of diversifying, uh, you’ve put your money on a very different kind of horse without compromising the original diversification, which you still have too much of anyway.
[01:09:52] Luke: mm-hmm. Yeah. you don’t need to do all this stuff in one hit, right? You could set yourself a goal of just making the portfolio a bit simpler over the next 12 months and then, you know, take a breath, look at where you are, and then maybe do like the next phase a simplifying a bit further. Maybe, maybe you did pick up like a bunch of 10 X stocks, as Christophe described. Maybe a couple of them have done really well, so you know, maybe they become part of your new like focus area And if you are starting to get like your favorite companies, like start doing a bit deeper due diligence, which you’ll be able to do as you own fewer and fewer companies, you can start to focus and just understand the ones you own a bit better.
[01:10:35] Kryszstof: Right. In fact, uh, there’s that and the other end would be, I don’t know how, I think you, you have the same kind of emotional feeling sometimes when you look at your portfolio and you now know that some company that’s a relic, you’re no longer either interested in it. Or you have bad feelings about, I would look at those 60 and I would just mark at least five that if they were gone, like, actually the que better question is, would you buy them today?
Right? And you just identify five, start with those. And then you do a little bit of work, you research, and if you really don’t care about them and they’re just sort of, you prune those and then you set those aside in the cash bucket, and then next time there’s a market correction, some extra volatility, or there’s a stock pitch you hear that you like, you know, you go on the boards, you talk to us on Patreon, and then you slowly deploy that cash, but there’s no rush to do it.
But you do it like piecemeal like that.
[01:11:33] Luke: You know what I think is a good test around this stuff is if you’re in the pub and you’re chatting to a buddy and you’re talking about one of your stocks, like if you can’t explain over the course of like a pint what this company actually does, then you probably shouldn’t own it. Right? Like you need to know at least the basics of what, like what the companies are invested in, what they actually do. And you know, hopefully you can do that with all 60 of your growth stocks plus everything else you own, but maybe you can’t and be honest with yourself. If you can’t, you’ve probably got no business owning that thing.
[01:12:06] Kryszstof: I mean, that’s kind of, you know, law investing jungle. Uh, it’s one of them right?
[01:12:11] Luke: Yeah, yeah. You know, you know what the laws of the jungle didn’t cover and I think we should probably add a couple of laws in the future. ‘ cause I’m trying to become more of a dividend investor. Like I picked up Novo Nordisk two weeks ago, I think. For lots of reasons, but one of them was, it was like an income investment. Um, and that there’s definitely this, this concept of being some companies being yield traps. I dunno if you’ve heard that term before. some, my buddy Albert helped me understand this. ’cause when I started looking at dividends in a really kind of naive way, I’d see companies which were, you know, paying like seven, eight, 9% dividend.
I’m like, well just buy those. Right? Amazing. Um,
[01:12:52] Kryszstof: Free money free.
[01:12:54] Luke: exactly. Yeah, yeah, exactly. Um, but these companies are traps, right? The reasons companies have to pay such high dividends is ’cause like in the main, they’re kind of dog shit investments. And you might be making a little bit of money in like the front door where you’re getting paid your quarterly dividend check, but you’re probably losing like your principle.
I. As the company’s business model falls apart, it gets dis intermediated and the valuations go down. So, you know, you’re looking for companies that pay a reasonable dividend that is kind of in line with the market. They have solid fundamentals, like they’re, they’re good companies and you might want to own them even if they didn’t pay a dividend. Ideally, you know, you’ve got a combination of dividend and growth, and if you’re a real like dividend hawk, then, I forget the term, dividend kings or something, whatever the term is. But like these companies that have raised their dividend every year, year after year for like 20 plus years. Um, so, you know, there’s, there’s all that glitters is not gold,
[01:14:00] Kryszstof: Right. Yeah. This is what we see in the bond markets. I mean, it’s the same thing when prices of bonds fall, the yield goes up. They’re inversely correlated because buyers need to have more reward for the lower price, lower performing asset. When when prices go up, the yield goes down.
[01:14:17] Luke: but Paul, you’ve obviously, you know, you’ve got it nailed pretty much like, you’re in, it sounds like you’re in a good place. If you are covering 60% of your monthly outgoings with your dividends, fantastic. You know, maybe apply that test. Maybe look at, I dunno, the top, I dunno how many dividends stocks you have, but maybe look at like the top two or three yielding companies and just try and a bit skeptical about why they might be paying you such a big dividend compared to everything else.
You know, hopefully that there aren’t anything like that, but maybe everything is actually really solid and reasonable. But like another test you can apply, I.
[01:14:51] Kryszstof: Yeah, so great question. Uh, I think we, I, I think there’s a lot for everyone to take away from that kind of inquiry. And, uh, looking at your own portfolio with a magnifying glass is good investing hygiene.
[01:15:07] Luke: Paul, thanks so much for sending in the audio of your question. So if any other listeners, particularly if Patreons wanna drop us a line, then maybe well on the Patreon, uh, you’ve got a message board right there where you can, you can submit and we’ll tell you how to submit your question. And if you’re not on our Patreon, which is patreon.com/wall Street Wildlife, like go message us on Twitter.
Uh, we don’t really talk about our Twitter handles very recently, but I’m at seven Luke Hallard.
[01:15:35] Kryszstof: Yep. And I’m at Seven Flying Platypus and, uh, it, it is lovely to connect with real humans and you know, it was good hearing your voice, Paul.
[01:15:45] Luke: Yeah, hopefully, uh, lots more of those. So do send your questions in or message us and we’ll tell you how to send your questions in. We’ve got like a lockdown process.
[01:15:54] Kryszstof: Yeah. So, thanks for being our, our Guinea pig.
[01:15:58] Luke: Great stuff. And you know, one of the tools Paul might use to start to analyze his companies in a bit more detail is the excellent fin chat. So if you go to fin chat.io/wildlife, I think if you go there today, as of recording, you’re getting a 25% discount. Um, and hopefully you’ve seen us, we’ve been tweeting furiously about that, a messaging about that on Patreon. If you miss that, sorry, bad luck should have paid attention. But you’ll still get a solid 15% discount at patriarch, uh, excuse me, at fin chat.io/wildlife.
[01:16:31] Kryszstof: Yeah, it’s a fantastic tool. Badger, are you ready to become a beast of an investor?
[01:16:36] Luke: Be a bee of an investor or a beast. Don’t, don’t want you blown off on me, buddy. I am ready to be a bee of an investor.
[01:16:45] Kryszstof: Your journey starts here.
