Luke Hallard and Krzysztof Piekarski | From Wall St Wildlife & 7investing

I'm joined in this episode by the dynamic duo from 7Investing Luke Hallard & Krzysztof Piekarski who also host the Wall Street Wildlife podcast. They're here to guide us through the treacherous yet rewarding terrain of the stock market with their "Ten Laws of the Investing Jungle." Today, we delve into five of these critical laws, revealing the wisdom and the war stories behind each one.

From the importance of focusing on the long game to the perils of thinking you're smarter than the pack, Luke and Krzysztof share candid tales of triumphs and missteps. They remind us that while the allure of rumors and quick wins can be tempting, building wealth on solid fundamentals is key to enduring success. Whether you're a seasoned investor or just starting out, this episode is packed with invaluable insights to help you chart your own course and construct a resilient portfolio.

For the full list of the Ten Laws of the Investing Jungle and to join the wild ride of stock market investing with a touch of humor and heaps of expertise, visit wallstreetwildlife.com.

There’s a million ways to invest in the stock market. It can be confusing, stressful and costly. But by following a few simple rules, you can avoid many common investment traps and unwanted anxiety. What if you were able to follow a team of tenured advisors (with 3 PhDs and 100 years of collective investing experience) who provide you with 2 new picks and 5 Best Buys every month. A "full buffet" of innovative, well-researched ideas for you to choose from. 7investing are there for you. They want you to invest for the long haul, in great companies with great leaders who can compound capital for years.

7investing are pleased to offer listeners of this podcast a $1 trial for 1 week and 15% off the annual price if you sign up using the promo code stocksforbeginners. Believe me this is solid research from experienced advisers who live and breathe the markets. So go to https://7investing.com/ and use the promo code stocksforbeginners to get your $1 trial and 15% discount on the annual premium plan. Use the promo code stocksforbeginners.

TRANSCRIPT FOLLOWS AFTER THIS BRIEF MESSAGE

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EPISODE TRANSCRIPT

Chloe: Stocks for beginners Phil Muscatello and Finpods are authorised reps of Moneysherpa. The information in this podcast is general in nature and doesn't take into account your personal situation.

Luke: Understanding the thesis for the stuff you own and doing your own due diligence work out why you own what you own. And that's incredibly powerful because the performance of the stock does not always reflect the underlying performance of the company. There's lots of complicated, chaotic things that happen between those two things. But the only one of those two things that's important is the performance of the company. And in the long term, going back to law one, if you're taking a long term view, eventually the stock price will come in line with the performance of the company. So if you're doing your own due diligence, and if you think you really understand the thesis of why this is a good holding, well, if the stock price is down and all your friends are calling you idiots, right, that's actually a kind of good sign that you've done your work. It just means you understand and your decisions, and ideally, your inaction is driven by your own comprehension of, um, the investment thesis and where the company performance is at.

Phil: Hi, and welcome back to stocks for beginners. I'm Phil Muscatello. Are you hacking your way through the undergrowth trying to find profitable investment returns, or do you have a solid financial foundation based on time, research and your risk tolerance? Here to help you develop these goals are, uh, Luke Hallard and Krzysztof Piekarski Hello, gentlemen.

Luke: Greetings, Phil. Great to see you again, budy. I've been on the show twice before, but I've been looking forward to getting.

Luke: It together a third time.

Phil: That's right. Well, you've been on the show before, but of course, we're introducing Krzysztof for the first time. Luke and Krzysztof are, uh, lead advisors at seven investing and hosts of the Wall street wildlife podcast. They're here today to talk about their ten laws of the investing jungle. Although today we're only going to be doing five. Is that the case?

Krzysztof: Yeah, we forgot the other.

Phil: No, it's a teaser. Be honest. It's a teaser so listeners will go and see what the other five huh, are.

Luke: But, Phil, investing is made too complex. And I love your podcast, stocks for beginners. And I'm sorry we're out there trying to steal your audience, buddy, because people make this stuff way more complex than it needs to be. So Krzysztof and I, we do the deep, dark, technical stuff over at seven investing. And if you're really getting into stock picking and individual company investing, that's an incredible place to start or continue your journey. But if you're a newer investor, we've recently launched Wallstreetwildlife.com, and we're trying to demystify some of the jargon and, um.

Luke: Stock market investing and, uh, make it.

Luke: What'S scary and confusing turn into something that's a little bit fun and accessible, hopefully, but still underpinned with some really solid experience and due diligence born of, well, 40 years of experience between the two of us.

Phil: Hey, did I authorize that plug? Uh, so early in the podcast? I just couldn't stop you, could I?

Luke Badger uses Shakespeare as a metaphor to explain investing principles

So, Luke, you've been on this podcast before, but let's introduce Krzysztof What's your origin story? How did you get into the jungle?

Krzysztof: Sure, I was born a monkey in the thick jungles of the Amazon with the sweet tooth for the golden fruit, the banana. And while in the jungle, though I'm precocious monkey, I started reading Shakespeare, which back in 1996, seven got me hooked on the first book by the Gardner brothers. They used Shakespeare as a metaphor and example, ah, about a lot of investing principles. And there's something in me that's a deep humanist. I ended up somehow studying to go into medicine and ended up with a PhD in literature. So there is something about Shakespeare that really speaks to me. And over the years, I learned that investing really is a humane art. And you have to know the world and you have to, above all, know yourself. And so that's kind of how I got started, reading the Motley fool books, getting into the stories of it, and then just. I kept doing it. And I guess time adds up.

Phil: And of course, the Motley fool is a shakespearean reference, isn't it?

Luke: That's right.

Krzysztof: The fool is the only character allowed to speak truthfully without getting his head chopped off.

Phil: And is it more of your. What's that series called when it's the kings, like with all the Richards and the Henrys? Is it that kind of shakespearean metaphor that we're looking at with the market? Or is it more of the comedies and the midsummer night stream?

Krzysztof: Oh, I think they covered quite a know investing spans, I guess, the range of humanity. So I remember Lear references and I remember comedic references. Not so many historical ones, although I guess Falstaff is one of Shakespeare's greatest inventions. Also shows up everywhere.

Luke: So here's the point.

Krzysztof: I remember not knowing a thing about investing as a 17 year old, being scared because I'm not mathematically inclined and I don't like spreadsheets and formulas. And when somebody said you could understand how to invest by reading and thinking about the human drama, I got interested. It was inherently interesting to me to make that connection. And I think the Gardner brothers did a hell of a job in the early days, back when it was just a literal paper newsletter that got sent to the door. Man, I look forward to that thing. Every know, old school style. I kind of miss know, but, yeah, that was it.

Phil: It's interesting that you say that, because Shakespeare was a master of the human condition and all of the emotions that go into making up what we are as humans. And that's the market as well, isn't it? The market really plays up and shows up everything about the human condition, doesn't it just.

Luke: It brings out the best and the worst in all of us in many ways. Like today, as with the day we're recording, Nvidia just had their latest earnings.

Luke: Release, and my God, I was on.

Luke: Ten to hooks with my emotions running rampant. And we'll talk about emotions later in today's show. That's definitely one of, uh, our ten laws of the jungle at Wall street wildlife.

Phil: Yeah, I saw a post on social media today. Someone was saying, I didn't even follow Nvidia, but I can't wait to see what the result's going to be today. And it was a cracker, I believe. I haven't really looked at it closely yet.

Luke: They blew it out of the water.

Luke: Actually, if you go check out the.

Luke: Most recent episode of Wall Street Wildlife, Krzysztof and I have a bet on.

Luke: A flight of whiskey, I think is the bet over?

Luke: Uh, the Nvidia results. And currently, at this exact moment, I'm winning. But he's definitely in shot of taking the crown.

Krzysztof: Meaning that the winner of this bet will be the animal, let's be proper, the animal of the jungle. Who predicted the closing price at the end of the market tomorrow most closely. And right now, Luke Badger is winning because the shares around something like 730. I predicted a $798 share price, which is not yet impossible, depending on the insanity of the market tomorrow.

Luke: Uh, quite right.

Phil: And it was interesting because in that episode, I was just listening this morning before recording, and you're talking about artificial intelligence and the importance that you're seeing for artificial intelligence, which obviously leaks into the Nvidia story because the amount of processing power that's required the other side for me, and this is something I've noticed talking to other guests, uh, especially ceos of startups. It's like the early days of the Internet. It's not necessarily going to be the first companies that do artificial intelligence or the Internet that are going to make the money, but the ones that utilize it. And so many companies now have suddenly been able to utilize artificial intelligence to really wrangle their mean. M. I always come back to John Deere as an example that they use artificial intelligence, and you can actually gain access to artificial intelligence by investing in John Deere. Anyway, that's just my observation. I don't know what you guys have got to say about that.

Luke: No, I think that's exactly right, Phil.

Luke: This is like a whole new range.

Luke: Of tools that are going to push.

Luke: Value into the hands of the companies that have the largest quantities of data. So I'm not a, uh, John Deere expert, but the example I lean on is Alphabet. Like, Google has such an incredible repository of information in things like YouTube, let.

Luke: Alone all of the other information we.

Luke: Give it when we're just kind of browsing the web and living our lives and using our Android phones and artificial intelligence, like large language models and big data techniques are going to allow these.

Luke: Companies to extract value, monetizable value, out.

Luke: Of this masses of data in ways they've never been able to before.

Luke: It's really, really exciting.

Phil: Krzysztof do you have a view on that?

Krzysztof: Yeah. To me, a second, but stronger coming of the Internet. And when the Internet was being born, I don't think anybody had any idea, any idea of what the end game of that would be. And now that we have an idea of just how powerful a, uh, networked world is, the power of artificial intelligence, I mean, it gets into some very funky, existential, psychedelic places, and it's not an illusion. And so in the rate at which it's happening is even more. Well, uh, it could be exciting, terrifying. So I'm getting a little high in the clouds philosophical, but I think I'm saying that as investors now, it's like the Renaissance. It feels like the Renaissance period where anything is possible. All horizons are there for exploration, and.

Luke: Everything is going to happen so much faster. Like the rate of progress, even just in the last week, seeing some of the new tools from OpenAI and from Alphabet, and they're just absolutely incredible. The kind of things that we're able to do with this technology that we couldn't even really think about two months.

Luke: Ago, three months ago. It's insane how fast things are going.

Philip Klein: Focus on the long game is key to successful investing

Phil: So let's have a look at the five laws of the investing jungle and the consequences of breaking these rules. Because you're very generous in actually saying what these rules are, but then giving personal stories about how you've individually broken these rules, which is a great way. I always like looking at mistakes. I've got this theory that we should all be confessing our mistakes to each other, because so much of the time on social media, you see people rocket emojis to the moon. They've made all this dosh, but, sorry, that's an australian term, dosh, isn't it? They've made all this money. So, let's have a look at a couple of these rules. To start with. We've got five, and that's the first one. Focus on the long game. Who's taking this one?

Luke: And can I say, phil, you're going to be a great priest here, as we do, uh, our confessional with you. So, we've picked out five of the ten laws of the jungle, and these are all good common sense principles, but we've picked out the five with the biggest horror stories between the two of us.

Phil: Yeah, I'm actually toying with the idea of Twitter space, or an X space called confess your financial failings to Father Phil. Yeah. So I might have to get you on that one. Okay. So, Krzysztof focusing on the long game.

Krzysztof: Sure. For 20, however many years, I guess since 1997, I've always played the long game. And had I followed this rule and only this rule, I would have been retired in my early forty s because I did all the work to finding the great companies. I found Netflix, I found Amazon, I found Tesla, I found apple. Just so many. And if I had only basically done nothing, I would have been like Scrooge McDuck swimming in gold coins. But such is the problem of humanity and human nature that short term thinking often is more seductive and more powerful. And what's especially interesting now, in this exact moment, for all kinds of complicated reasons, I mostly sold off my entire portfolio in November and left myself with a bunch of less than ideal companies in terms of business excellence.

Phil: Duds.

Krzysztof: Yeah, there you go. And I've been schooling myself in a brand new game in a short term game, technical analysis and weaving in and out and using momentum and options and all that kind of stuff. Basically the opposite of everything that I knew for the duration of my investing career. And I'm doing this for sophisticated reasons, I'd like to think. But nonetheless, in the big picture, I think the long game is where it's at, uh, especially for beginners. And it's just easier, it makes you wealthier, and if you could just stick to that one law. You'll be fine.

Luke: It's so seductive to look at, say, an earnings report like today, Nvidia's earnings report, and then try and make short term predictions about what's happening, and then try and trade into those.

Luke: But it's a fool's game.

Luke: It really is. And I think the stock market investing is stacked in favor of the individual investor. It's stacked against the institutions and the brokers and the experts, because they are forced, they're incentivized to take a short term view, because they've got to show.

Luke: Results to their clients over, uh, a.

Luke: Couple of months, a couple of quarters.

Luke: A couple of years.

Luke: We are long term investors. Krzysztof and I have over 20 years each in the market. I know personally, I only have to account to myself. I know if my stocks are down, but I know the thesis is intact.

Luke: I can just say to myself, dude.

Luke: Take a pill, chill out, relax, give it a couple of years. If the thesis is right, if you're.

Luke: Right, it's going to come good.

Luke: Wall street, the professionals can't do, uh, that. And this is our advantage. As an individual investor, I will confess.

Phil: To one of my own investing failures, and that is not looking at the long game. And another guest came on the podcast who said he had five rules, or five don'ts. And one of the don'ts was, don't trade too often. And that just seems to talk about this, doesn't it? Just don't trade too often. Another person I was talking to said, treat your portfolio like a garden that just needs occasional weeding. You just let it grow the flowers that you love the most. Let them grow and trim the weeds.

Luke: That's great advice. Have a plan, and then check your plan. Doing nothing, taking no action in your portfolio doesn't mean doing nothing. It means revalidating the thesis every quarter. Listen to the earnings call, read the 10Q look at the reports, look at other analysts opinions. Check in with services like seven investing.

Luke: So check.

Luke: Ideally, the best thing to do 99% of the time is to do absolutely nothing. When you start fiddling around, that's kind.

Luke: Of when you create costs yourself, because.

Luke: You'Re incurring, like, bid, offer spread. But you're also just giving yourself an.

Luke: Opportunity to make an error.

Phil: And you see that with older investors, that they've got the experience and they know not to be looking at their portfolio once a day, twice a day. I always say the analogy, it's a long term investor looking at a five minute chart, because it's just going to do your head in, isn't it?

Luke: Yeah, the classic coffee can. Portfolio investors who maybe their grandparents bought something decades ago, it got forgotten about. It was left in a dusty drawer. And suddenly you realize that this investment portfolio, during the, uh, sort of wrapping up of the will, they're suddenly worth tens of millions of dollars.

Luke: And nobody had any idea.

Second law is about understanding your investment thesis and doing your own due diligence

Phil: Okay, so the second law that we're going to be covering is chart your own course. And of course, this is one that's really difficult for beginners as well, because you don't even know which course to take.

Luke: Let me dive into this one because I've got my own war story around this that's particularly painful from a couple of decades ago. Chart your own course. That's really about understanding the thesis for the stuff you own and doing your own due diligence.

Luke: Basically, don't get investing advice from TikTok and, um, from random commentators, from Kramer.

Luke: Work out why you own what you own. And that's incredibly powerful because the performance of the stock does not always reflect the underlying performance of the company. There's lots of complicated, chaotic things that happen between those two things. But the only one of those two things that's important is the performance of the company.

Luke: And in the long term, going back.

Luke: To law one, um, if you're taking a long term view, eventually the stock price will come in line with the performance of the company. So if you're doing your own due diligence and if you think you really understand thesis of why this is a.

Luke: Good holding, well, if the stock price.

Luke: Is down and all your friends are.

Luke: Calling you idiots, right, that's actually a.

Luke: Kind of good sign that you've done your work.

Luke: And knowing the thesis well allows you to sort of stick with the story and see through the bad times.

Luke: Now, that doesn't necessarily mean if something's gone wrong and thesis is broken, you kind of hang on for dear life.

Luke: It just means you understand and your.

Luke: Decisions and ideally, your inaction is driven by your own comprehension of the investment thesis. And, uh, where the company performance is at, not what the stock price is doing.

Luke: That's the least relevant metric of all.

Luke: The metrics I look at on a daily basis.

Phil: And what about your war story?

Luke: Yeah, so it's not stock market investing.

Luke: Many, many years ago, a couple of good buddies were buying investment properties in Spain. And they got lured in by some slick salespeople. And instead of buying one property, they decided to buy two. So they said to me, because I had a bit of cash, I just sold a house at the time, they said, hey, luke, do you want to come in on this deal? I trusted these guys. I still trust them. They're smart, super great guys.

Luke: I threw in a significant amount of.

Luke: Money for myself at that time in my life. I didn't do my own due diligence at all, and it went very badly wrong. And I realized that the moment I got to Spain to sign the contracts. And that should have been the point.

Luke: Where I went, holy hell, like, I've made a big mistake, uh, here, but.

Luke: In for a penny, in for a pound. And that turned into one of the worst deals of my life.

Luke: But I learned such a powerful lesson.

Luke: About doing my, um, own due diligence.

Luke: I think that's repaid me in the last decade.

Charting your own course is really difficult, and I know

Phil: Charting your own course is really difficult, and I know I said that right at the start, but it's like, you've got to have a good thesis and strategy to begin with. I mean, I just think about all these people that are sitting on lithium stocks and how much money they've lost over the last six months to a year doing that. And so many true believers still, that lithium is the story. Are there any tips in just trying to work out what the course should be taken? And to avoid that kind of mistake.

Luke: I think it's always helpful to seek.

Luke: Out the bear case. I actually had a debate on Twitter.

Luke: Just this morning around a company called.

Phil: A debate on Twitter. That's a nice way of putting it.

Luke: Yeah, exactly. And I posted, there's a company called Palo Alto Networks, which I'm a bull on. Um, and I own this company, and I think it has a great long term trajectory.

Luke: But last night, overnight, down 25% for good reasons.

Luke: Like, the company has probably misstepped a little bit. And I posted a critique on Twitter, and one of the replies to my critique was, oh, this is clickbait. So there you have an investor. Presumably they found me because they've seen.

Luke: The Palo alto ticker and they're just dismissing my critique, not realizing I'm actually bullish on this company. So if you close your ears to.

Luke: Dissenting voices, you're kind of closing your mind to the possibilities.

Luke: And I think, as an investor, the most powerful thing you can do is.

Luke: To steal, man, try and understand the best counterargument to the investments that you have, because then, truly, you're embracing the risk and you're getting a rounded view.

Luke: Of what the possible outcomes could be.

Phil: And you're just looking for what could possibly go wrong. So the third is thinking, you're smarter than the pack, and this can be dangerous. It seems obvious, but a lot of people do jump in thinking, it can't be that. Huh.

Luke: Hard.

Krzysztof: Well, I'm here to tell you it can be quite hard. This is a little counterintuitive, and this is a tricky law. In one sense, in the most broad sense, the crowd is wiser than the individual. You want to trade with the momentum of the crowd. So here I'm talking about zooming way out and seeing. This is one of these instances where looking at a chart is useful. If you zoom out on a couple of years, is the trend down or is it up? That tells you a lot. If it's down, there's a reason that over many years, it's down. If it's up, there's a reason for over many years that it's up. In general, you want to be going with the trend, which means following the crowd. Don't be smarter than anybody else. The exceptions to this, I would say, is if you have yourself some expertise in a particular domain, because by profession, or because you know some people intimately who work on the inside and you have not insider information in the legal sense, but you genuinely know things that most people don't, then you can begin maybe trying to take some side bets because the market hasn't yet figured it out. But it's dangerous. It's not necessarily wrong. It's dangerous. My most horrific war story is a recent one. I had done more research on one particular company than I ever had before in my life. I became absolutely obsessed with it because it was seemingly too good to be true. And because I've been doing this a long time, I knew I couldn't just believe the story. I had to do the work, and then I did the work, and it still appeared to me like, uh, a once in a lifetime kind of thing. And that's when I lost the plot, because I began thinking I'm smarter than what the market was telling me. The story is not over, by the way, and I'm talking about the, uh, young zinc bromide company, Eos energy. But I lost a lot of money because I bought options, and it didn't work out in the time frame that I thought. And basically, my big brain messed me up. So invest with the crowd, usually, and it does.

Luke: Being a long term investor, you have to be disciplined. You got to be patience.

Luke: But probably key in this rule, you.

Luke: Got to have a healthy dose of humility. Like, if you think you're smart, you're.

Luke: Probably going to get your backside spanked.

Phil: Be humble. Yeah, it's always a good idea.

Phil: There's a million ways to invest in stocks. It can be confusing, stressful, and costly. But by following a few simple rules, you can avoid many common investment traps and unwanted anxiety. What if you were able to follow a team of tenured advisors with three phds and 100 years of collective investing experience, who provide you with two new picks and five best buys every month? A full buffet, if you will, of innovative, wellresearched ideas for you to choose from. Seven investing might be for you. They want you to invest for the long haul in great companies with great leaders who can compound capital for years. Seven investing are pleased to offer listeners of this podcast a free trial for a week and 15% off the annual price. If you sign up using the promo code, stocks for beginners, that's only $170 per year, 15% off the regular price. Believe me, this is solid research from experienced advisors who live and breathe the markets. So go to seveninvesting.com, that's the number seven investing, and use the promo code, Stocksfor beginners, or lowercase one word to get your absolutely free trial and discount on the annual premium plan.

Krzysztof: Avoid technical trading for beginners because it's unpredictable

That's seveninvesting.com. And that code again, stocksfor beginners. I receive a small commission for services that I recommend, and this helps me to keep this show trucking down the highway. I only recommend services I use myself.

Phil: I know from the technical side of things that people look at technical trading as being like necromancy or, uh, reading tea leaves. They're looking at a chart and looking for patterns that are going to predict the future. But the way that you describe it, Krzysztof is really, really good, because you really do want to just look at a company, look at it over a long time frame, look at the direction it's going in, and you just avoid the ones that are going from top left to bottom right. It seems like a basic screen that you should put on any kind of company that you're considering for your portfolio.

Krzysztof: Yeah, I have, I think, healthy respect, newfound respect for the technical side of the game. But first of all, I know the long term game inside and out. And so I'm not confused. And I am very aware that there are different rule sets, and it is possible to master different kinds of rule sets and be good at both. It's just that the technical side, it lives on probabilities, and in the land of probabilities, you will be wrong very frequently. So it's kind of like Luke and I talk about poker all the time. Even if you're a skilled poker player, you sure as hell could have a run of bad luck over weeks. You'll have some professionals in know tearing their hair out because the cards just ain't coming. And in those situations, I went on.

Luke: A six month bad run once. It can last way longer than weeks, and it hurts.

Krzysztof: Yeah, right. And you start questioning everything. So that's why for beginners, especially, avoiding the technical stuff is the way to go. However, exactly like you were saying, once you know what you're doing and forget the tea, leave. I mean, some people approach you with tea leads and they try to sell you snake oil. You'll find those people and you'll know that they're salesmen, not authentic practitioners. But the authentic people, they are doing what poker players do. They're looking at what the price is telling them. They're analyzing patterns. The stock market is run by humans. Humans are creatures who fall into predictable patterns. And more often than not, the patterns play out. It's just that to get good at and figure out how to make money, that's the hard part. But I think the most important takeaway is. Yes, the one I said earlier. In the long horizon, I would encourage all investors. When you think of buying a stock, look at the five year view. If it's from low to high, you have a green light. If it's from high to low, you're betting against what the planet is telling you, and that's probably not going to work.

Luke: Know, Phil, we have this debate all the time. I'm going to let Krzysztof have that one just because he said five year view. But, uh, I know you look at shorter charts than that, budy, I know you, right?

Krzysztof: That's right.

Phil: No, no, but that's important to point out here that we're not talking about a, uh, course where you're going to be learning all the patterns and the penance and the heads and shoulders and all of those technical kind of things. Just one of those really basic things about looking at the direction of the share price and using it as only one of your criteria for buying a company. Is that right?

Krzysztof: Yeah, that's right. So what I would say, right, I think Luke is chastising me for partly good reasons. What I'm doing now, specifically in this phase of my new, uh, investing exploration, I am playing with short term charts, and I've looked at even charts by the minute and by the day, by the outright, that is, again, like a different game. But I know that's the game I'm playing. What I'm saying is don't dismiss charting completely as fortune telling for the long term investor. If you look on that broad horizon, it tells you a really important piece of data.

Luke: Maybe just to give Phil's listeners a little insight into the argument we have literally every week, because this stuff is mumbo jumbo. It is absolute garbage. The right way to invest is very simple. Ignore the price, ignore these charts. Literally find the best quality companies in the world and hold them for a long time. That's literally it.

Luke: There's nothing else to it. Everything else comes from that.

Build a resilient portfolio by diversifying across different instruments

Phil: And here, ladies and gentlemen, is this sectarian divide, technical versus fundamental. Okay, let's go and have a look at point number four. Build a resilient portfolio. And I guess, Luke, that's what you were just talking about and referring is.

Luke: It is. And I suppose the technical word for this is diversification. We tried to come up with some kind of fancy jungle oriented analogy. A sudden drought in the market can wipe out the fortunes of those who focus too narrowly. It's about looking at the stocks you hold, or, ah, the different instruments you hold, and making sure you've got a good mix, healthy mix of high risk.

Luke: And low risk, geographical diversity, big companies.

Luke: And small companies, companies in different industries, companies that serve different types of consumer, companies that may be defensive and perform really well in a really tough recessionary environment, such as the one we might be going into. And then also the wild hypergrowth, crazy tech companies that do well in a zero interest rate environment where everyone's going to go in growth at all costs if you can diversify effectively. Oh, and also, by the way, if you're an older investor, or if you're nearing retirement, maybe mixing in some fixed income, some bonds, some other stuff. I'm, um, not a great fan of that stuff, but that certainly has a place, depending on your own personal risk tolerance, if you build a diversified portfolio.

Luke: Which is, frankly, you could be diversified.

Luke: With as few as twelve to 15 companies, I probably have the majority of my own investments. I think I've got something like 80% of my invested capital in my top 15 companies. And, uh, I said to Krzysztof on a recent episode, I'm actually, I'm hoping to get a bit more concentrated right now, so I'm going to try and get down to 80% in my top ten by the end of, I think I said 2025.

Luke: Always make small moves.

Luke: I hate making, like, big decisions. I like to nudge myself in different directions at different times, depending on what.

Luke: The bigger environment is doing. But yeah, if you can avoid the.

Luke: Siren call of putting all your resources into a single target. You reduce your risk materially, but you can still retain alpha, you can still retain the ability to beat the market if you're owning good quality companies across that diversified basket. And I made a mistake here because the single biggest in dollar amount investment.

Luke: I ever made was, to my chagrin.

Luke: Uh, a singaporean company called SEA Limited.

Luke: And I was on the sidelines for many years watching the company, and I.

Luke: Actually couldn't invest in them because of the nature of my weird, sort of tax efficient UK investment account. And then suddenly I had a different kind of account that did allow me to invest in Southeast Asia. So I jumped into SEA limited with.

Luke: Both feet, bought a much bigger position.

Luke: Than I normally would as a starter position.

Luke: And then, well, today, as of the.

Luke: Time we're speaking, I think I'm down 80% on the biggest dollar amount I ever put into the stock market. So that's still stinging. And that whenever I open my portfolio.

Luke: That one hurts my eyes the most.

Phil: Good to hear. A profound failure is part of the resilient portfolio also trying to trim out the ones that aren't working. I mean, on, um, what sort of basis are you doing that? And we referred to this a little bit earlier in the episode.

Luke: Yes, interesting. Like, I was chatting to a friend about this just a few days ago, why would you sell? And I think there's probably a couple of reasons why you might sell or reduce your exposure to a company. There's sort of good reasons and bad reasons.

Luke: Like, the biggest reason you get out.

Luke: Is the thesis is broken. The reason you were invested in this company no longer exists. Maybe a huge competitor came along, the market dynamics changed, leadership made like a.

Luke: Really fundamental thesis breaking decision, possibly like Palo Alto networks yesterday, although I don't think they did, just to be clear.

Luke: So you should be checking thesis. Do your own due diligence, know where the company's going.

Luke: If something's fundamentally broken, though, don't be.

Luke: Slow in getting out. That's the advantage. We don't own houses and these big illiquid investments where it takes months to transact. If you make a decision and you're.

Luke: Confident in that decision, take it.

Luke: Get your money out of the game. But there are other good reasons why you might reduce a position and try and remain diversified. A really good example is Krzysztof mentioned.

Luke: Netflix earlier, and it's a company that.

Luke: Uh, really was the engine room of.

Luke: My portfolio for maybe my first ten years as an investor.

Luke: And frankly, the company grew so much in my portfolio. My initial buy actually was a 250 times return by the time I finally exited that position.

Luke: So more than 100 bagger.

Luke: But it kept becoming so big relative to my rest of my portfolio, I was feeling undiversified, so I had to keep trimming it. But I'm trimming it for good reasons. I'm trimming it because of my own portfolio, not because of the company's performance.

Luke: So you do have to distinguish between that and know when it's time to sell or when it's time to trim back.

A resilient portfolio is one capable of changing with the times

Krzysztof: I'll add, uh, a complicating factor to this, because we don't want to deceive you into thinking that investing is easy. I mean, investing is easy. From one perspective, the long term buy and hold. Don't touch it, you'll be fine. But from another perspective, things change quickly. And sometimes the change is innocuous, and sometimes it's a death trap. And in the middle of it, there's the fog of war. You can't quite tell. If I think back to the Netflix era, there was a moment when blockbuster decided to undersell or undercut Netflix by basically giving away movies for free. And Netflix was still a young company. Was that kind of thing daggering Netflix's heart, or was that doomed to fail? In hindsight, obviously, we could tell for, right, that, uh, Netflix would become superior. But that's hindsight bias, and that's survivorship bias. So a resilient portfolio, I would say, is some combination of strong companies that appear to be nimble, capable of changing with the times mix of different industries, so that if a black swan event happens, or if you are wrong, it doesn't destroy your gains. And sometimes you're wrong. The resiliency does not mean you're always going to be right. That's impossible in investing. It's just setting yourself up. That's, I guess, what the word resilient means, right? When you get knocked down, does your company have a shot at getting back up?

Luke: There's a very famous quote from investor.

Luke: Peter lynch, and he said, if you're.

Luke: Right six out of ten times in.

Luke: This game, you're doing well.

Luke: Like, I've definitely made my fair share of, like, four out of ten mistakes.

Luke: But as a long term investor, it's.

Luke: Stacked in your favor. Even if you're actually only right two.

Luke: Or three times out of ten, if.

Luke: You'Re investing in the right companies, you're making such a return on those small number of companies that it far outweighs.

Luke: The losses on maybe your greater number of mistakes.

Building wealth on fundamentals, not rumors, is key to investing

Phil: Okay, well, let's have a look at the last and the fifth law of the jungle, and that's build wealth on fundamentals, not rumors, which seems really easy, but it's so hard to resist the siren call of someone saying, oh, this is a really good stock. This is a really good story. And again, it's about the storytelling, isn't it?

Krzysztof: I would say, yeah, maybe I'll take the lead on this and turn it back to you, Luke. This is big for me. It's why an investment service like seven investing, I think, has so much value, because over time, you begin trusting the people you know. There's no charlatans pitching you snake oil. You develop that trust over time, you listen to whether the person making the pitch has the capacity to admit mistakes. Can they see the bears case? If so, then they're probably giving you their most hard earned, well informed information that's out there, and you then do without what you will. That is very different from strangers taking candy from strangers on the Internet, where you have no idea what their motivation is. You have no idea what's going on behind the scenes. And that's, I would say, predominantly what's going on. And I think that's why I think Luke and I, as advisors for seven investing and also on our own, know we're trying to build rapport with our audience. We're trying to build trust. We're trying to be as transparent as possible, confessing to you, Father Phil, so that people can then trust us.

Luke: And, ah, there's something very authentic, I think, about being a team. One thing I really value about seven.

Luke: Investing is we're not afraid to constructively.

Luke: Attack each other's theses on, uh, the stocks that we recommend.

Luke: And, um, every month, if you're a subscriber, you get a video where we're.

Luke: Literally trying to pull each other's thesis apart. When I was pitching stocks for seven.

Luke: Investing, it's scary, but also it forces.

Luke: Me to do a really diligent job because I know I've got to face a grilling from four other experts. And that really contrasts, I think, with getting advice from, say, Reddit's Wall street bets or from TikTok. It's like going to the racetrack and asking the most excitable punter which horse to bet on. Like, super entertaining, really funny.

Luke: But these if forums, they're amplified by excitement over, uh, quality analysis. And companies like seven investing.

Luke: We strive to have a really transparent track record.

Luke: If you're a subscriber, you can see.

Luke: All of our recommendations back years and years. You can see the price we recommended the stock at, and you can see the price today and how we're performing versus our benchmark, which is the s.

Luke: P. And we're not hiding behind and.

Luke: Deleting post two tweets, one that says stock's going to go up, one's going to go down. See what happens. Delete the one that was wrong and you look like a genius.

Luke: There's none of that shenanigans.

Luke: Um, this is all genuine stuff.

Phil: And of course, seven investing, uh, is made up of Simon the boss, Simon Erickson, Luke Krzysztof and Anirban and Dana as well.

Luke: Yeah, it's a solid team with a really solid team.

Phil: And you're covering different sectors of the market very much, aren't you?

Krzysztof: Yeah, I'm in charge of the dunky pile.

Phil: Donkey pile.

Krzysztof: Yeah. Dung heap.

Phil: Dung heap. Okay. You're the dung beetle of the, uh, team. We'll talk about seven investing and the Wall street wildlife podcast, but I just want another shakespearean question. What kind of investor do you think Fallstaff would have been?

Krzysztof: Oh, man, that's a great one.

Phil: Uh, because he was a buffoon, but he was a smart buffoon.

Krzysztof: Yeah, that's a great question. He would have been an options trader.

Phil: With his tankered at the same time.

Seven investing. com has changed its strategy to focus on quality over quantity

Okay, well, so seven investing. Now, you guys are, like I said, a part of the seven investing team, which we highly recommend. And we've also got an affiliate code. If you go to seveninvesting.com, you can use the affiliate code stocks for beginners for a significant discount on a subscription, which we all highly recommend, don't we?

Luke: We do. And actually, no, Phil, I'm glad you shared that because this is actually a really interesting time in the seven investing journey. We took a strategic change maybe four or five months ago, and we used to put out seven recommendations a month. Now we're putting out fewer recommendations a month, but we're super focused on the recommendations.

Luke: This is now about quality over quantity. And now every month, all five of.

Luke: Us are doing a conviction review where we go back and look at all of the companies we've recommended, and we give our paying subscribers insight into, up to the minute, what's happening with those companies, what's just happened in earnings, what's happening in the news, what's happening in the macro environment, and, ah, how it could affect those companies.

Luke: So it's about having less, but much deeper, uh, insight.

Luke: And I think that's actually really proving to be really valuable for our, uh, subscribers.

Luke: They seem to really like that change in approach. Yeah.

Krzysztof: And I'll make an obvious pitch if I can. A subscription like this, it will pay for itself over and over and over and over again. So sometimes you start from OD. I, uh, can't afford $100, whatever seemingly large amount of money you think it is. But when you realize that five years from now, that will have made you in the tens of thousands of dollars, the difference in magnitude is gigantic. So sorry for the sales pitch, but it is one of those common roadblocks.

Luke: Get over it.

Krzysztof: It's worth it.

Luke: And, you know, there doesn't even have to be any risk. If you're coming in as a new member, do please use Phil's affiliate code, stocks for beginners.

Luke: But right now, we're still running a $1 trial membership for a week. Come and check us out.

Luke: Have a look for a dollar.

Luke: If you don't like it, it's cost you a dollar.

Wall Street Wildlife podcast features Wall Street experts discussing investing for beginners

Phil: Okay, now the Wall Street Wildlife podcast. We'll put a link in the episode notes and the blog post, and also, listeners can get a link to download the full set of the ten laws of the jungles, which we're very excited about to be able to swap this.

Luke: Yeah, we've just published these very recently. We went through probably five exciting laws of the jungle, where we had some real war stories, but we have five equally compelling laws of the jungle. If you want to come to wallstreetwildlife.com and there's a download link there where you can download our ten laws of the jungle. And if you enjoy the content, and if you enjoyed Krzysztof uh, and my banter today on our own podcast, we're much ruder. There's a lot of swearing that gets bleeped out, and I definitely go after him week after week with his technical trading nonsense. Then you can find us on YouTube. Ah. Or on any podcast platform, Wall street wildlife.

Luke: And we're both on Twitter as well.

Luke: And we welcome your, uh, attacks and constructive feedback. What's your Twitter handle, Kristoff?

Krzysztof: It is at the number seven flying.

Luke: Platypus, and I'm at seven. Luke Hallard.

Phil: Luke Hallard and Krzysztof Piekarski Thank you very much. It's been great chatting with you guys.

Krzysztof: Thank you, Phil.

Luke: Bye, Phil.

Chloe: Thanks for listening to stocks for beginners. If you enjoy listening, please take a moment to rate or review in your podcast player or tell a friend who might want to learn more about investing for their future.

Stocks for Beginners is a production of Finpods Pty Ltd. The advice shared on Stocks for Beginners is general in nature and does not consider your individual circumstances. Stocks for Beginners exists purely for educational and entertainment purposes and should not be relied upon to make an investment or financial decision. If you do choose to buy a financial product, read the PDS, TMD and obtain appropriate financial advice tailored towards your needs. Philip Muscatello and Finpods Pty Ltd are authorised representatives of Money Sherpa PTY LTD ABN - 321649 27708, AFSL - 451289.