Long-Term Investing Ideas in a Volatile Market
Simon recently spoke with a $35 billion global asset manager about how they're navigating the market volatility. The key takeaways are to think long term, tune out the noise...
January 25, 2023 – By Samantha Bailey
With Luke and Krzysztof on the same side of the Atlantic, the Force Without Limit is even more palpable! There’s lots of self-reflection from Luke about lessons learned in another year around the sun and why you should move to Tahoe, ride motorcycles, use fancy AI camera systems to make you look like a snowboarding bad-ass and remember what money is really for.
Krzysztof pontificates about what the value of an education needs to be in the time of chatGPT and how both educators and investors need to turn toward the tool with a mind of creativity and potential rather than an enemy to be outwitted. We take the scenic road in answering a member’s question about Upstart and how to think about selling and the ever-present tension between hope and reality.
If that’s not enough, confirmation bias tendencies are also discussed, which means we end up at a poker table with Daniel Negreanu (in theory)! What a time to be an investor!
Luke: hello and welcome to another episode of No Limit with Luke and Krzysztof. I’m calling in from Lake Tahoe and so we’re both in the same time zone, almost Krzysztof. Good to see you buddy at this daylight outside both our windows for a change.
How are you doing?
Krzysztof: Oh, Luke. Uh, good to see you too. I just, 10 minutes ago came back from, uh, my jiujitsu practice and I was matched up with, this is a, a kind of worst case scenario. A complete beginner who is huge, like six foot something, and. A big, big dude and who was a very successful wrestler.
Luke: Wow. Okay.
Krzysztof: And so what ends up happening, I needed to give him the, the spiel like right away.
What ends up happening is that when you don’t know what you’re doing in jujitsu, you immediately resort to strength. And my, in, my whole, uh, idea about life these days is to stay alive and not get. right, to avoid injury. But, you know, uh, when we started going and I, and I start threatening him in some situations, out came the strength.
I’m, so, I’m beat up. is the, is the, like I was so much smaller than this guy. Um, you know, I helped my own, but, you know, like, uh, my, my hip, something’s wrong. You know, I’m old and I’m beat up. But it’s, it’s fascinating how, you know, when we don’t know what we’re. in anything in life that kind of, um, survival instinct comes in.
And I think that’s where the, the biggest mistakes happen.
Krzysztof: So that’s a long way of saying, I’m great, man. so it’s so, it’s so good to see you
Luke: You could apply that lesson to investing and everything, right? When you go into panic mode, fight or flight mode, I guess your body just kind of does the, the thing that it’s used to.
Krzysztof: That’s pre predominantly why I mentioned it that, you know, and I’ll, I’ll underscore this. At the very beginning I said, look, you’re gonna want to use strength, right? And you’re gonna wanna do all of this, um, and I’ll call you out on it. And then of course, you know, the instinct is what the instinct is.
So there’s a kind of weird thing, you know, in investing too. It’s like, Same stuff like Don’t use Mar.
Krzysztof: Oh, I’ll use Mar today. You know, don’t what should I do? Oh, that’s a good idea. You know, like somehow experience is the best teacher. Right? And eventually maybe we learn so enough about me, I hear a little birdy told me that it’s a special week of the year.
Luke: It is, this is my birthday week. I’m, uh, I’m now materially into that sixth decade. Yeah.
Krzysztof: And so the Luke tell me, uh, a reflective man like yourself who goes out and, and lives and does things, when you look back on this past, uh, year or last 51 weeks of your life, , what did you learn, if anything? My assumption,
was that you must have at least learned one thing.
Luke: Uh, yeah. Okay. Good one. Good question. Uh, my buddy Albert, uh, Told me off for prioritizing, spending money on stuff over experiences a few years ago. So I feel like 2022 was definitely the year of experiences and trying to minimize the stuff and the, the crap in my life and spend, you know, time and my dollars on enriching my life and having.
and kind of broadening relationships and things like that. So that was my big learning and uh, I’m, I think I’m gonna carry that forward for the rest of my life. just yesterday, we’ve, uh, we’ve locked in a, uh, Croatia motorcycling tour. So, uh, I need to make sure these experiences are like lined up so I don’t get lazy
Krzysztof: I guess to all our listeners, listening at home, I wanna say don’t try this at home or do try this at home, but know that you’re dealing with a professional here. So, uh,
Luke: I did used to be a motorcycle instructor, so that’s not terribly far from the truth.
Krzysztof: Oh man, I really wanna know more about that. Uh, for our listeners who don’t have the visuals, I have to say that Luke right now is, uh, he appears to have this like shit eating grin on his face. There’s something that is, I don’t know, maybe it’s the yellow shirt too, but there’s something right now that looks extraordinarily happy.
Luke: It’s a, it was a big day yesterday. We went to a ski resort called North Star and, um, a, a guy I met at dinner two days ago, kind of a friend of a friend. Took us to some little back country area. I had no idea existed, and it’s kind of super secret there. It’s not very well signed, posted, and it was just incredible.
I’d love to say I got some crazy footage of it with the action camera, but like it was so terrifying. I didn’t dare get the camera out of my backpack.
Krzysztof: wow. So the smile is the fact that you’re alive.
Luke: uh, yeah,
Krzysztof: Like we’re celebrating the fact that you’re still with us
Luke: And actually we were, you kindly agreed to push the podcast recording forward by a couple of hours cuz I was expecting to be super hungover this morning. Um, we were planning like a big night out, uh, and for full transparency because, um, a couple of guys in that in the house have got the hots for the Argentinian lefties and apparently it’s a big Argentinian night out in Tahoe on a Sunday.
But we all got back and we were so wiped out. I was in bed by like 9:00 PM completely destroyed. So the Argentinians will have to wait till next week.
Krzysztof: Oh man. Uh, well, it seems like whatever you’re doing, you know, uh, you’re doing it right because between right, between investing and trying to really think about what money is really for. . Many people know that money is a really strong force. It’s a very powerful force and it could easily just dominate you in all kinds of ways, but also put you on blinders where you can’t see much beyond it.
Right. And so seeing, it seems like you’ve deliberately started navigating that force differently.
Luke: I guess like I’m not a wealthy guy by any means, but I’m now kind of focusing my, you know, limited investment returns, which have been substantially destroyed over the last 12 to 18 months. But I’m, I’m just like, I need to prioritize my life. I’m 51 now as of a couple of days ago.
I figure I’ve got 19 ski seasons left in my knees, so I don’t wanna miss any of them. So, uh, yeah, you know, some things are more important than, uh, a number are in a spreadsheet that help by your financial institution.
Krzysztof: Yeah. There’s the wisdom. You come here for the wisdom, and you stay for ] the . Devilish. Tell me Luke about some AI enabled advances in sports cameras. , I saw something truly astounding on our internal Slack channel. at first. I, I watched it passively cuz you know, I mean, you know, scrolling the things and looking at the things and then I watched your video and then I was like, wow, that’s cool.
And then it, and then it took me a little bit to realize that what I saw was I shouldn’t have seen because something about it was not, did not add up. Do you wanna take us through what it is you think I saw?
Luke: Yeah, so I, uh, I borrowed a buddy’s, um, Insta 360 action camera, kind of like another GoPro competitor, and I was just blown away by it. I’m gonna have to buy myself one. I think. Uh, it’s basically like a three
Krzysztof: Oh, uh oh.
Luke: Yeah. So, uh, like this is not a, uh, advert for Insta 360. This is not sponsored. I’m just kind of blown away by the technology. It’s, um, it’s a 360 degree camera. And it has like various mounts, but we had it on like a selfie stick and I was snowboarding in like nice snow between the trees. It was like a beautiful environment.
And I’m just holding this stick. And the, the smarts of this technology has really astounded me and this had made me think about some of my own investments, funnily enough. Um, so I’ll try and kind of segue to that, but, uh, yeah, like what this thing does, it kind of blocks out the selfie stick, so it kind of looks like a kind of camera, just wherever you are, wherever you have it, the real smarts are in the app.
So, um, just on your phone, it’s a really cool little. Uh, very simplified editing suite where, you know, you’ve got this 360 degree view for say a five minute video. I captured kind of running through the trees on the board and you can, you know, you could pick whichever angle you wanna look at. So from the same footage we had like video where it’s kind of the stick is in front of me, so it’s land looking back at me and you can see the snowboard.
Kind of lower it down and you get like a really kind of dynamic view of the snow kind of kicking up, but then kind of change the tracking, uh, like this sort of deep learning algorithm, you can tell it to focus on a particular subject matter. And when my buddy went like zooming past, Like the tracking focused on him.
So I posted this video and it took, it took like 20 minutes to edit together. It looks super professional and great quality. I had like a number of my friends say, wow, like whoever was filming you, it’s just an incredible snowboarder. I dunno how they got that footage. Someone else was like, Is someone flying a drone?
Like, how did you get that footage? That’s incredible. Yeah, it did look so good. Uh, sorry. Yeah, I’ve gotta buy one of these things, but it made me go down a bit of a rabbit hole about, AI. Technology in sports generally, it’s really quite interesting. Like we’re all familiar with the, um, like the goalie cam and the kind of, you know, the, the eye in the sky to help referees now make good decisions.
But, um, like cameras today capture. Spatiotemporal trajectories for like all players in say a netball match or something, and they can kind of analyze how quickly people are moving and where they are in the, in the, in the kind of playing environment. Incredibly powerful for coaches of teams trying to identify player strengths and weaknesses.
Um, and you pair the stuff with wearables as well, like it’s really big now for injury prevention. You can see if someone’s taking a fall that was like a little bit harder, the AI could alert you to that and maybe you could get some treatment before that player really is kind of put out of the game.
And this stuff, even for like an amateur, like if you’re doing say yoga, A basic camera now can analyze your pose and the kind of angle of your limbs, kind of figure out what you’re doing and then give you really directed feedback on, you know, oh, you know, you are downward dog, you need to lift your butt a bit higher, that kind of thing.
So really smart stuff and that we’re linking it back to investing. Um, I had an investment in a company called, Matterport ticker mttr. And I’ve been an investor, it’s one of my kind of venture investments and it’s done like awfully. It’s down like 80 something percent and I actually exited it about two weeks ago.
Um, but it made me reflect on that . They’ve got some nice technology, uh, where you kind of walk around, say a building, and then with mat a matter. App on your phone or one of their own specialist bits of hardware. You kind of capture the environment and you build this beautiful Doll’s house view.
And it’s great for things like Airbnbs or factory environments. You create a digital twin of the environment that you can kind of walk around then in vr. Um, so you can see the power of that. But this is like a company that really just has like an app. So like, should this be a company that just does that?
That’s the kind of question I was asking myself. And when I see like this little company into 360 and they’ve got this technology just in like simple apps. The capabilities of AI are so good now that I think developers are just gonna start turning out technologies like this at a rapid pace.
And so any company like ol unafraid from my personal view, um, that are really focused on something that is really just an app, I dunno, that really holds up as an investment thesis.
Krzysztof: Hmm. Wow, whoa, so much in there. Can, can I rewind way back to the start?
Krzysztof: So correct me if I’m wrong, you’re saying to me that you were holding a stick in that.
Krzysztof: even though it looked like your hands were normal.
Luke: Uh, yeah, absolutely. Yeah. So I guess, you know, the selfie stick is always gonna be in the same plane from the camera, so I guess it does some kind of interpolation and then, you know, it’s only gonna be like a little circle of pixels of that little black missing bit.
Krzysztof: so I think the important piece that I’m, I’m noticing is that your, everything about you looked natural. , and it’s just completely astounding that you were actually holding a stick
I was just magically edited out. Wow, that’s amazing. And, and right. I, I went through the same process. First it was, is this a drone?
And then I deduce that it’s probably not a drone, but then I thought, oh, it’s somebody filming you. But then that turned out to be impossible given the. Weird angle, . And the stuff you said about the, the future of investing in software companies.
In the time of ai, things are really, really changing.
Luke: They really are.
Krzysztof: You know what, this feels to me like a interesting segue. a little bit to one of the red flags topics that we talked about on our, team call. I made the case that keeping our eyes on Google. Not because the thesis is necessarily broken, but that given what is happening in the world of ai, a new paradigm might be on the way. And a, once we invoke the powerful word of paradigm, we’re no longer talking about things that play by the same rules.
And given that it seems like a new paradigm has already land. . Any company that makes its money in a kind of, let’s say, monopolistic way by old rules, just simply has to now account for the whole, we don’t know what we don’t know, phenomenon. And so given everything you said, Luke as investors, it seems like we really now have to be extraordinarily careful.
one, not become attached to theses that worked perfectly well in the past and might still be working well. And also, like you’re saying, be very careful for things that clearly could be disrupted.
Luke: Yeah, that pace of disruptions. Faster and faster enabled by ai. Right. So you’re absolutely right. I think you did a great job of reminding us on our team call that we shouldn’t be complacent even about like a behemoth company like Alphabet, Google, um, cuz even there targets for disruption.
Krzysztof: Right. And then, and then of course we do know that disruption tends to happen like gradually and all of a sudden
Krzysztof: and we don’t know where on that scale we are. But you know, I think another example I used was all of a sudden, you know, Kodak was this giant. Company, and then you look the other way and all of a sudden it’s dead because digital cameras showed up and like, when did that happen?
You know, like, and that’s, and that was going at a pace much, much slower than what we’re dealing with now.
Luke: Yeah, absolutely.
Krzysztof: so maybe on this topic, my own contribution is, I’ll tell, I’ll tell you a true story. Luke, if you, if you g Gather, gather around the the fireplace, get yourself a cup of coffee. Last week I started teaching again for the spring semester, and this was my first time in front of the classroom after the landing of chatGPT P.
in my particular style of trying to be in the world is to turn toward difficulty and to name it, as opposed to, you know, working hard behind the scenes, either pretending it’s not there or overcompensating. Right? And so I wasn’t going to wait, for example, for let’s say an assignment and I tell my students to write an essay and.
I begin say, you know, then having to deal with questions of authorship, cuz that to me is already too late. You know, kept trying to, in a sense, catch someone in the act of cheating. So first day of classes I said to my students, welcome. You know, this is a brand new world. And isn’t it interesting that the way we’re both used to doing things, you as a student and me as a professor, is now radically upended.
and that we really need to think together about what does it mean to be in the classroom now, and here’s the weird thing, I’m gonna kind of skew the numbers a little bit, but it’s approximately 20 students in the discussion format. And I asked them, how many of you have heard of chatGPT?
What’s your. University of Texas
Luke: Uh, most three quarters.
Luke: Whoa. do we live, do we live in this bubble? You and I , we think everybody’s
Krzysztof: Yeah. So isn’t that weird? I mean, here I am talking to, you know, the, the next generation, all these smart young whipper snappers grown up on, on the technology. So it’s kind of weird because on the one hand I was just surprised, but on the other, , it’s not gonna be very long before every student, not only knows about it, but is using it.
And so I didn’t think I made any kind of mistake in unleashing or Dragon, whereas otherwise they would have remained ignorant. That’s not the point. Right. I’m, I’m kind of saying the opposite. So when I brought this, you know, up in terms of conversation, we ended up having a very, I think, profound discussion, or at least.
I planted the seed of a question in their minds, which feels applicable to me in all the realms, including, especially as investors, which is how do we conceive of what is it that we’re doing now in the age of ai, where to a large extent, any piece of inform. is now available to you in the purely, call it existential dread sense of it.
You might, you might answer, well, there’s no point anymore, but I don’t think that’s the correct answer. On the other extreme, you might say, I’m just gonna rely on the AI bots from now on. And I think that too is flawed , for example, now in my classroom, assigning an essay or a test is kind of. , . Write a five page paper on X is, is completely broken. Now I didn’t do that before anyway.
I, I was already, uh, messing with, with that stuff. But for us, right in this context, like what do you think? How’s this landing for you? This kind of disclosure of mine.
Luke: And I suppose it’s, you know, it’s what you’re trying to achieve in the teaching environment, like in the real world, inverted commerce, post that period where you’re trying to prove that you have this knowledge and this skillset. It’s just about being able to apply things to achieve a result.
So, you know, if I want to. If I, if I, for some reason I need like a four page investing thesis on something, if AI tools can help me get there, then great. Like I should be using those and maybe the skill is in formulating the right questions to ask and then analyzing the conclusions to see if they kind of stack up with my own thoughts.
Um, but in a teaching environment, uh, yeah, I don’t, I don’t know. You’re the professor. What, what conclusion did you guys.
Krzysztof: Well, you know, I’m not going to let you off the hook that easy. Let me ask you one more question just for a second. Imagine you are me, right? And the object is to help these young people learn. Learn X, you know, in this case it’s a class about the, it’s called the rhetoric of animals, right? Where we study how animals are represented in different styles and philosophies and so forth.
And your task is to, to teach them how to think about, let’s say animals or rhetoric. How might you. try to, what kind of work do you give them? You know, what kind of assignments do you think still matter what kind of evaluated framework in the end do you rely on when you know they could chatGPT it?
Luke: Well, I suppose it reminds us of. Like the floor in traditional education, which is, has really been about regurgitating information, like memorization to pass a test. And then you’d have no, no real knowledge of that subject. You can just kind of, you know. Okay. C, question A, you know, regurgitate answer B that I just revised like two days ago to kram.
Um, Like I, if I really understand something, I should be able to teach it myself and I should have, you know, a genuine understanding of that topic and to be able to apply it in my own life. That’s either my own benefit or you know, the benefit of people I’m conversing with. So, um, something like chatGPT is gonna help you develop that knowledge cuz suddenly you’ve got this incredible.
Conversational partner who can bring new ideas and it’s not just about like Google something and get a result, it’s now we can go deeper and then we can have a conversation with the AI about why is that the answer? And we can explore adjacent topics. So I think that’s gonna help. A student or anybody, um, develop a true kind of innate knowledge of whatever the topic might be.
Um, cuz our skill as humans, I suppose, is to be able to link these very disparate ideas and kind of make connections and then, you know, innovate by kind of spotting things that perhaps other people haven’t spotted before. Um, so I think it’s positive. Uh, but then how do you evaluate. Uh, like in like the Viva process, I suppose, where you have, you converse with your student and you just check, you know, they’re not looking at a screen, they just actually understand this stuff.
Krzysztof: Right. So that’s one path, like make the evaluative process to some extent live. either, you know, I mean, let on the most literal end of it would be some kind of live exam. But even if you take exam out of it, it would be based on the quality of thought, live and discussion. But it also cursed to me, like, for example, let’s assume that I, uh, assign the topic.
What are animals? and now the assumption is the student will put that question into chatGPT and get a paper. The assignment might actually be based on that assumption, that bring in the answer that you got from this AI machine and then annotate it and, and explain to me the strengths and weaknesses of that response.
Right. So it might be the kind of second level analysis. Right. And
Luke: But, but you could ask. I’ve, I’ve seen, I’ve seen people using chatGPT p t like that and they’ve challenged chatGPT t’s answer and ask it to justify why it said what it said. So that’s just like the next question in some ways.
Krzysztof: Right. So that’s a never ending kind of
derivative. Yeah. I really wonder, you know, I wonder how this is gonna play out in the world of investing I don’t wanna go too far into the subjective realm, but it’s a sort of intuition born of experience that moves beyond whatever the quant side of it can bring in.
How can we find this middle way where we are taking advantage of the number crunching that the a, the AI can do, and yet we feel confident to override or fill in whatever is missing.
Luke: Yeah. Yeah. Well, if you, uh, if you figure it out, let us all know we’re, we’re keen to understand what the future of education is.
I’ll keep you updated cuz. Yeah. I, I just started, you know, it’s now my second week of, of this brand new world, so stay tuned.
Luke: Very good. Well, so you’ve, uh, you’ve not just been teaching your students about, uh, the roles of animals. You’ve also been having some interesting conversations on our seven investing discord with a couple of members. And I know you came clean quite recently. About a step you’ve taken in your own portfolio to exit a particular company, and you’ve been challenged by one of our members.
So I wonder if you give us a bit of background on what you did, and then maybe I can take you through a couple of the questions that we got from dl.
Krzysztof: Yeah, sure. Uh, this was in our podcast about, I believe worst, the worst of 2022, and I confessed that. The company, upstart, ticker, U P S T It claimed my number one worst investing dis mistake decision of all time,
it seemed to me. The difficulty of why this was so bad was because I truly believed and continued to believe in the company’s product that it is in fact, let’s say, better than what banking offers now. So the use of AI to more accurately predict credit risk, I guess, would be the, thesis and that that’s actually.
The problem from my perspective was that the moment macro turned,
we got a kind of optimistic evaluation from the management team about how little macro would affect the company. and that turned out not to be true. That I don’t think is the mistake quite yet. I think that’s kind of common in the investing world. You know, you have to, at some point you have to trust the management team.
I had no reason to distrust them. They said, things are gonna be great, things will be fine. It won’t be that bad. We have the tools in place. Then we find out that’s not the case. Okay, so the stock drops a bunch. And then you kind of take your licks and you get on with it. The mistake was that once that data was clear that even the management team did not quite have their, I don’t think there was anything malevolent or, or devious or deceptive involved here.
They just simply didn’t understand how quick the rate at which the rates rose that that took them off guard, that that really would mess with the business model. . And so as soon as that became clear that it did, I did not sell. And I believe my mindset shifted from having a good thesis intact and patience letting it play out to we have an issue here, but now I’m hoping that things are gonna be.
Krzysztof: and the moment I recognized that hope became a substantial piece of the puzzle I ought to have in hindsight sold.
Luke: And DL asks that question. He or she says, um, if that investing mistake was down to timing, what strategy should you have taken following your initial purchase? And I think it sounds like you’re saying, , like once you realized the thesis wasn’t playing out, you should have taken more decisive action.
Krzysztof: Yeah, this is, uh, this is, so, this really is, I think, one of the hardest things we have to deal with as investors. I would call it the tension between patients on one hand. and the illusions of hope on the other.
It’s, I really don’t wanna get dogmatic about this because this is too tricky. You know, some particular context might lead you to an alternate conclusion, but, but the reason I, I put this firmly in the mistake bucket Luke. is because this situation is not taken, in a void of context.
This was happening while other companies were also drastically dropping in value whose theses were fully intact from my perspective, which means that as long as I had capital in the company with a problematic thesis, and the value points of the ones that were still doing well now it’s kind of, now it’s an issue of why am I not purchasing more of the strong companies in isolation?
It might be the right move to just ride it out as long as there’s enough strength there, which I think upstart , that is the case, but the fact that now I could own X, Y, and z. At a huge sale, prices with that capital means that I waited too long.
Luke: I, I had the same debate on a different investments, uh, I think on Twitter and maybe also in the seven investing discord. And I had the same conclusion, like something I was exiting from my portfolio. It was just too, becoming too complex and it was distracting me and that even as a tiny amount of money at that point, cuz the investment had been eroded away so far, that money just felt better deployed into Crowdstrike, you know, something a, a company I understand well and that I feel has very significant potential and a very high conviction.
And I just don’t wanna be distracted with having like Matterport and Zoom in my portfolio.
Krzysztof: Yeah. That’s such an, that’s another great point. This issue of complexity. Now to use it, the upstart case. Study again. The problem for me with Upstart is I actually think I understand it well because I, I spent an enormous amount of time studying it, so I feel like I know it pretty well, and yet, and yet it’s an incredibly complex thing.
AI plus the banking system, plus macro conditions, plus, I mean, you know, it, it kind of gets tricky real. The real evidence for me was that, that the moment I sold it, I felt a sense of relief. And you kind of maybe don’t get that. I guess it’s, you don’t get to experience that until you do it. But as far as, you know, some nuggets of wisdom for our listeners, it could be that you might imagine what might happen if you sold a particular company from your portfolio.
and really try to embody that feeling and, and ask yourself, would you feel lighter? Would you feel cleaner? Would you feel more simpler? Like your life is all of a sudden way simpler,
Luke: Yeah, and it sounds like, it sounds fluffy stuff, but actually this is really important because it, we are human creatures, right? And as much as we try and divorce our emotions from our, you know, co cognitive thinking and planning, They just get tied together and like having emotions about an investment, positive or negative can be detrimental.
Krzysztof: Yeah, absolutely. In one, one additional point that I think, uh, to answer , our Discord member’s question, on top of all that, there’s one more egregious fallacy kind of lingering. who, whoever said to me that I can’t buy back upstart shares once I’ve sold them Where, where is that? Where is that?
You, you know, wooly mammoth standing behind me. Right? And that’s the fallacy, right? You, you sell and you think, oh my God, I’ve made the worst mistake of my life. And now that com, I’m, I’m now forever barred from, from that company. But that’s obviously false. And so what I’m hoping now is that, you know, we do get some positive.
memo from, you know, in whatever quarter that happens, the stock, let’s assume, jumps, whatever, 30%, right? It’s a real great report. Well, if my thesis is correct about upstart, that 30% jump is gonna be, is gonna be nothing compared to its real long-term potential. So I buy back in when it’s ready to go.
Luke: So that’s great, crystal. I think that captures DLS question. So not investing advice clearly, but, uh, the one remaining aspect. So, as an expert in upstart, albeit one that’s exited their own position, um, would you, if you hadn’t been burnt, start a position today?
Krzysztof: I am not an expert on upstart I’m way too ignorant about most things, so please do not take me as an upstart expert.
Luke: certainly more of an expert than that. That commentator, mark Mini Irvy, who got outed
Krzysztof: right? yeah,
Luke: That was a hilarious video.
Krzysztof: Yeah. Yeah. Would I start a position today? It would depend entirely on the kind of portfolio I’m running, and that’s another one of these pieces. I think, honestly, the way I would handle this in my own portfolio, as some of you regularly listeners might know, is I like. one share of companies that are no longer purely what I call my wishlist companies,
therefore, metaphorically, I, I don’t consider my one share companies as companies I own, so I kind of use a little slide of hand. . And yet when I look at my portfolio, you know, at the bottom of it, all the one share companies that don’t really make any difference to, to the whole value of it, unless I have one share of Brookshire
Yeah. But, uh, the one share companies really stand out for continued examination, and I would own one share of upstart at.
Luke: Okay. Pure. Primarily say to help you keep an eye on it because you might buy more than one share in the.
Krzysztof: Correct. Exactly. So
Krzysztof: do you have any views about this company or shall we move on?
Luke: I don’t, I don’t, uh, I think my views are perhaps misunderstood, um, because I kind of put this in my bucket of slightly unethical companies who perhaps are promoting a, like a culture of reckless spending. But I mean, if you feel that’s wrong, challenge me on.
Krzysztof: Yeah, I, I certainly never thought of it as unethical, mainly because its primary business model helps those who are primarily ignored by the banking system to have access to capital, which I think is a. Whole lot of good. And so whatever other tech, uh, imperfections it might have, I don’t think on a whole it would ever outweigh the good for me to think of it as unethical as a whole.
Luke: I’ve kind of got it bucketed with buy now, pay later firms in my mind, which I’m quite averse to, and I’m sure all of these companies could be incredibly good investments. About having seen what, let’s say the kind of money lender type businesses like Wonga in the uk, I dunno of any US examples.
Um, and they got regulated out of existence correctly. So that was a, a, a triumph for regulation because they were. Charging just disgusting levels of interest rates to customers who had no other recourse than to fall on to use their business model. And those customers were just ending up in much worse situations.
I kind of see buy now, pay later in the same way. I wouldn’t touch those companies, although again, they could be great investments. I kind of had upstart in that same category, but you seem to be saying, no, that’s not the.
Krzysztof: I think in this case, now that I hear what you’re saying more clearly, Luke, I think upstart is quite different from that. In fact, maybe almost like an antidote to all that, but that interestingly takes us full circle. because the reason I think it’s different is because in theory, the ai, that is the product that is the company, if it’s actually doing what it’s supposed to be doing, it’s identifying genuine credit worthy borrowers, genuine, not elusory. Via data points that don’t normally, that aren’t normally visible by the banking system. Those data points from using AI magic add up to genuine credit worthiness, whereas otherwise this client would be excluded. So you’re, you’re all of a sudden discerning with increased, I would say, in these ethical terms, skillfulness.
Who actually does deserve to get , credit and who doesn’t. Therefore, uh, doing a whole lot of good and in fact countering the predatory stuff.
Luke: That’s cool. Okay. It’s, uh, it’s back on my long list. Let me know when you think about adding a second share and I’ll, uh, take a deeper look.
Krzysztof: I’m still recovering from, from, from the disaster, so it might be some quarters Luke.
So we recently had a subscriber only call. That focused on us identifying companies we thought had a red flag, meaning there’s some thesis and there may or may not be kinks in the armor.
And I came away from that conversation really
enthused, I suppose, by the systems level thinking that we were doing because there was some genuine disagree. , I think in well articulated disagreement about several companies, and my claim is that this, this is the kind of work that is essential to any good investing process. In other words, the villain is confirmation bias.
I would probably say that’s the greatest villain in the all of in investing. . Once you believe something, stock X is good, you will only look for evidence to support your position. And worse, you will hyperactively avoid anything that contradicts that. It doesn’t feel good to own Stock X and find out it has problems.
So most of us pretend that alternate data does not exist.
Try to, you know, in good faith work through that in conversation is, you know, I want all our members, all our subscribers at seven investing to really pay attention to that episode on the, on the systems level.
Luke: It’s incredibly valuable being a member of a expert team of advisors who do have very different views about some of these companies. Like we align on some things, no doubt, but we definitely have different perspectives on certain investments, and when you buy a subscription to seven investing, like you’re not just getting seven stock recommendations and deep dive videos a month.
You’re getting access the discord where you get to chat to us and ask us questions about those and pose your own potential red flags, which we’ll debate. And we are constantly reviewing our active recommendations and those that are perhaps on hold to see if the thesis is intact. And. You know, in a respectful way, I feel like we do, um, attack each other’s ideas to ensure that they’re strong and robust.
So that red flag’s conversation was great. I got to share a company, in fact, the first company I ever recommended for seven investing, I’ve, I’ve noted a number of red flags with it along the way. I felt it was still. A buy recommendation still deserves, it’s placed on the scorecard, but it was really valuable to share those red flags. Have a bit of debate around the table, and get that reassurance that, um, these aren’t thesis breaking.
Krzysztof: And it’s good to receive pushback, to get that, uh, that other side. And I think it’s just really important to note that with confirmation bias, you know, it often happens, uh, in several ways, but the dominant ways is we keep ourselves at a distance where we just pretend that whatever we’re seeing doesn’t exist.
And that kind of like, it doesn’t come close. , you know, whatever we’re, we’re investing, we don’t keep it close enough. So it’s easy to, to ignore the stuff, or we literally project the stuff we already believe so that, uh, even, you know, we kind of selectively pick the, the stuff that will confirm our views.
And watching a conversation like this happen live, it’s sort of interesting. The confirmation bias stuff does arise because we’re human, right? Our first reaction is like, no, you’re wrong, or, you know, but I think over time with like, the conversation ought to linger in people’s minds. You know, the next day, two days later, it, it’s like planting a seat.
Luke: And it’s powerful. Um, forcing yourself to think about the bear case in your own investments just helps broaden the mind. So you know, the opportunity to kind of. Pitch that to colleagues, going back to our early conversation, you know, to truly understand something is to be able to teach it.
You know, we’re not teaching each other, but, um, we are having to demonstrate our, our deep knowledge of these companies. So that’s, that’s helpful stuff. If you’re not asking yourself those tough questions about all the stocks in your portfolio, then, you know, perhaps a wake up call.
Krzysztof: Yeah. Especially in the age of ai,
Krzysztof: that’s gonna need to happen more and more.
Luke: So you wanna, uh, you wanna play the three conversations game? We skipped it last
Krzysztof: I’m I’m ready. I’m ready. I’m, I’m ready to see what the, what the fresh snowboarder, skier, newly wise version of this game looks like. Hit me.
Luke: Okay. So, uh, and if anyone who’s just tuning in in episode nine, we generally close out our episodes with three conversations game, and this week I’m gonna pitch three random topics of conversations. Christoph, he’s going to Nick’s one he doesn’t wanna talk about.
Then I’ll pick one of the remaining two and he’s gonna give us one minute of wisdom on that topic. So your three conversations, which actually. Held over from last week. I wrote them a couple of weeks ago. Uh, number one, when does a digital currency become the reserve currency of the world? question two.
Kathy Wood versus Warren Buffet for 2023 is gonna have the best results and. And question three, if I gave you the opportunity and the bank role to play heads up, no Limit Poker for a million dollars with any living professional player, who would it be and how would you prepare?
Krzysztof: Okay. Couple clarifying questions here.
Krzysztof: uh, with the first one, digital currency of the world. The question is when,
Luke: Uh, yeah, but if you wanna tell me never, then you can, you know, that can be your answer.
Krzysztof: so it would be sort of like, yeah. Uh, when might such a thing like that happen?
Correct. And the last one is, I get to pick this poker player. Correct?
Luke: Uh, you do. Yeah. It’s gotta, you gotta be a professional though. You can’t pick a complete amateur.
Krzysztof: Right, that’s what I was gonna say, because if I’m trying to win the million dollars, is the question really asking me who is the worst professional player,
Krzysztof: or who would I just enjoy spending, spending time at the table with,
Luke: giving a million dollars to, yeah,
Krzysztof: Yeah. And given, uh, a million dollars. Um, okay, I got, all right. I have my answer to all three, but let’s not talk about the digital currency of the world.
Luke: Sure. Okay, cool. Uh, like I would like to know about the Kathy Wood thing cause I’m intrigued, but maybe we should make that a conversation in two weeks time about like what’s gonna happen to growth stocks. I’m interested in your view, so let’s have the fun one. Let’s talk about poker.
Krzysztof: The fun one, I know who I don’t wanna play against, and that kind of led me who I would wanna play against. There’s something about Phil Ivy’s legend. that scares the hell outta me. It’s like the, you know, the legend of like, just somebody that like has laser eyes that would like actually fry you, fry through you, and then knowing he has no fear whatsoever and w like I, I would be terrified.
I, that would not be fun at all for me. I don’t think.
Luke: I’m with you on that.
Krzysztof: and therefore I think the person I would have the most fun with, you know, to, if I’m gonna lose my million bucks, might as well lose it. Having fun, Daniel Negranu
Luke: Good answer.
Krzysztof: and, and that’s probably because the, the conversations I’ve heard with him really makes it seem like he’s not only good on the skill level, but.
His style is the, you know, the sociable storytelling style. So there’s the banter and there’s the, there’s the, the kind of prompting and poking you to get information, but you feel as though you’re having a good time. Right? Like the magicians, slide of hand and maybe that says a lot about my.
that I probably would handle that more skillfully than, than playing with the, the other style that tries to intimidate me. Which is interesting because the book, the Biggest Bluff by Maria Kondakova, in which she is a PhD psychologist and asks. One of the world’s best poker players, Eric Sdel, to mentor her, he agrees, and the entire book is about her being forced to study her own character at the poker table because it became obvious.
This is what makes it a fascinating premise for the book. In the, in the poker world, it’s dominated mostly by, and at the higher levels you re, you really are talking about character styles in combat with one another. And it became painfully obvious to her that she was being bullied in a lot of ways because of the male female dynamic.
And so my answer to this question is the more I think about it is interesting that I said I would not wanna play with Olivie, but I would be okay with the green new because something obviously in me. Has some issue with authority or that kind of bully where I would be thrown off my, my game, but the more sociable thing, I’m more comfortable, like the kind of chameleon character I’m not as threatened by and how I would need to.
Negotiate the traps of that. You know, where maybe I’m too comfortable with someone like Nick Renu and what, what would I need to look out for there? Right? All of that is endlessly fascinating to me. Character, I mean, poker as a character study.
Luke: Cool. So, so you seem to have resigned yourself to the fact you’re gonna lose the million bucks, but you may as well enjoy yourself while you’re doing.
Luke: Cool. Well, you’ll get some great stories out of it and hopefully, you know, make a nice connection with ne Grau, who does seem like a genuinely nice chat.
Krzysztof: Yeah. Fascinating conversations. I, I’ve, I’ve heard, uh, with him. ]
Luke: Very good. That was a good, uh, three conversation answer to start. 2023.
Krzysztof: That’s right. Happy New Year to, to all our listeners. Thanks for investing with us we’re Luke and Krzysztof were seven investing
Luke: And if you enjoy today’s episode, why not do us a favor and recommend it to a friend? Send ’em a link. We’ll love to welcome ’em into the No Limit Family.
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