Random Ramblings NOV 2024: Post-Election, how top investors stay on their game, existential risks

Episode Summary

Executive Summary: Andrew Walker’s November ramblings focus on post-election market reactions, the likelihood of heightened volatility under a Trump administration, skepticism about media and polling narratives, and several investing reflections: the value of being in rooms with sharp investors, common blind spots around financial engineering stories, and how existential risks can be mispriced or underestimated across both small and large companies.

Main Topics: Post-election market reaction and second-order thinking (Priority: 5/5): Walker reviews the initial market winners and losers after Trump’s victory, then argues that most obvious first-order trades have already played out. He urges listeners to think about second-order effects rather than simple GOP-winner/loser narratives. Volatility as the key investing theme under Trump (Priority: 5/5): He expects the next four years to be highly volatile due to Trump’s style, appointments, and willingness to intervene unpredictably. He frames volatility itself as an investable theme and suggests being ready to deploy cash when companies are suddenly targeted. Skepticism toward media narratives and betting-market dismissal (Priority: 4/5): Walker criticizes how media outlets dismissed the Polymarket Trump whale before the election, then retroactively explained away the whale’s conviction after Trump won. He sees this as an example of poor handling of differentiated data. Value of being around great investors (Priority: 4/5): He expands on the idea that discussions with strong investors can sharpen thinking, asking what elite investors do to maintain an edge—whether through data, expert calls, or focus on specific niches and markets. Investing blind spots: financial engineering stories (Priority: 5/5): Walker identifies his own weakness for companies centered on buybacks, leverage, and financial engineering. He says these stories have been among his worst investments because they can create psychological blind spots about risk. Existential risk and tail outcomes in investing (Priority: 5/5): He discusses how investors may underestimate rare but catastrophic risks, especially in companies with concentrated assets or businesses exposed to single-point failures. He argues that some ‘great’ returns may simply reflect being paid for taking hidden existential risk. Regulatory risk in big tech and cyclical mispricing (Priority: 3/5): Walker extends the existential-risk framework to large technology firms, suggesting that part of their success may stem from the market underpricing future government crackdown or regulatory pushback.

Key Arguments: The market has already priced in many obvious election-related winners and losers, so investors should focus on second-order effects. Trump’s presidency is likely to create sustained volatility, which could itself present trading and positioning opportunities. The media and polling experts may have prematurely dismissed the Polymarket Trump whale, missing a real differentiated signal. Being in rooms with exceptional investors is valuable because it exposes investors to methods, data habits, and niche opportunities they may not otherwise see. Financial engineering stories often feel attractive to value investors but can distort judgment and hide downside risks. Some investments that look like skill may actually be compensated exposure to existential risk that only becomes visible after a blow-up. Large companies, including big tech, may also face underappreciated existential or regulatory risks, even if they appear too big to fail.

Data Points: Election timing: November 17, 2024 - Date of the episode and post-election reflection. Trump whale bet size: $50 million - Polymarket position placed on Donald Trump to win the election. Bitcoin move since election: From roughly $65,000 to $90,000 - Example of a first-order post-election beneficiary. Bitcoin gain since election: About +30% to +50% - Walker’s rough estimate of the price increase after Trump’s win. Trump admin volatility window: 4 years - Walker expects volatility throughout the new administration. Anniversary: 5 years - Walker mentions his five-year anniversary the day before recording. LeBron body-care spending: $1 million per year - Used as an analogy for elite maintenance/investment in performance. Derrick Henry body-care spending: $500,000 per year - Used as another analogy for elite maintenance/investment in performance. Typical financial engineering valuation: 10x free cash flow to 15x free cash flow - Walker describes a common buyback/leverage thesis. Potential median belief on election: 50-50 - What polls and commentators suggested before the result. Popular vote margin expectation: About 2% - Walker’s estimate of Trump’s likely popular-vote victory margin.

Pivotal Quotes: "I think the next four years are going to be really volatile." — Andrew Walker: His core macro view on the Trump administration and investing environment. "I have an investing blind spot for financial engineering stories." — Andrew Walker: He explains a recurring weakness in his own process and why he has to slow down and reassess these names. "I think sometimes what happens is you have a group of investors who they have written some type of existential risk without knowing it." — Andrew Walker: His thesis on why some strong long-term returns may simply reflect hidden tail-risk exposure.

Implications: Listeners should expect more policy-driven volatility, question consensus narratives, and tighten risk assessment around buybacks, leverage, and single-asset businesses. The episode encourages second-order thinking and greater skepticism about what looks like skill versus hidden risk.