Markets Are Ripping & Gen Z Trends

[00:00:01] This is The Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Braden Dennis and Simon Belanger

[00:00:14] The Canadian Investor Podcast. Welcome into the show. My name is Braden Dennis and today got a special guest, Ryan Henderson, who leads content and growth of FinChat joining us on the pod.

[00:00:27] We got a couple episodes of myself, some special guests, Dan Kent filling in and Simon will be back in action in no time. Dude, thanks for doing this. On short notice, the pod goes on.

[00:00:42] Of course. Yeah, always happy to join. We've got plenty of topics today, so excited to get through some of them.

[00:00:48] And you live, eat, sleep, breathe financial markets between your podcast, the job, your own personal interests. So I feel like you can kind of get going on this quickly.

[00:01:02] Dude, where do we stand today? The markets feel pretty frothy. There's all these indicators of people thinking this game's easy, people thinking they're the next Warren Buffett.

[00:01:14] But I've seen this movie before.

[00:01:17] Yeah, it feels like getting kind of that same gut feeling that anyone that was investing in 2021 or before that probably remembers it in 2021, where you're constantly looking at companies, you're doing the work, and then you're looking at the valuation and it just feels a little extreme.

[00:01:35] It feels a little tough to make the math work or there's little pockets of excess throughout the market.

[00:01:42] I think we're certainly seeing that today with some of the recent valuations and just stock soaring 50% after earnings and stuff like that.

[00:01:53] So yeah, I'm getting that same feeling.

[00:01:55] And the particularly junky speculative stuff.

[00:01:58] Yeah.

[00:01:58] That has so much hot air under it.

[00:02:02] That's what makes me the most nervous.

[00:02:04] I'm seeing it again happen with VC valuations, feeling a little bit 2021, rush to deploy capital, feeling similar to that.

[00:02:14] Obviously, the crypto, which I want to separate the conversation from that and Bitcoin and things that have real kind of either store of value or utility because fart coin is not a billion dollar asset.

[00:02:31] So the stock market casino lives on and we're seeing this kind of find itself in a lot of places.

[00:02:39] And we've seen this movie, man.

[00:02:40] We've seen it.

[00:02:42] Yeah.

[00:02:42] It feels a little bit like the SPAC craze.

[00:02:44] I mean, the spot where I'm really seeing it is micro strategy especially has just been soaring lately.

[00:02:52] I think today as we're recording this, it's down 17%.

[00:02:55] But prior to that, it's trading at, I believe, three times.

[00:03:00] It's three times its asset value or its Bitcoin asset value on the balance sheet.

[00:03:05] Right.

[00:03:05] And the real business, the software business they have there is not worth it.

[00:03:09] So it's like people are paying extreme prices just to be kind of involved with it when you could just buy Bitcoin outright if that's your goal.

[00:03:15] So yeah, it does seem like kind of buying without looking is happening all over.

[00:03:20] Yeah.

[00:03:21] Because it's a leveraged bet.

[00:03:23] It's taking fiat leverage to buy Bitcoin.

[00:03:27] Dude, so I just got back from New York last night and saw a lot of ETF providers, a lot of brokerages.

[00:03:34] It was at a conference.

[00:03:35] And some guy was telling me that he just launched this ETF.

[00:03:40] He has been launching ETFs for 10 years basically.

[00:03:43] Like he's an asset manager.

[00:03:44] And he has the 2x micro strategy as a ETF.

[00:03:50] So it's just micro strategy is a single holding levered up.

[00:03:55] And micro strategy is already a levered Bitcoin play.

[00:04:00] So it's like effectively like 5x Bitcoin essentially.

[00:04:06] And I mean, the AUM has just gone gangbusters.

[00:04:11] Exactly.

[00:04:11] This is what we're talking about.

[00:04:12] The frothy stuff, the junky stuff, very speculative and high risk.

[00:04:19] It feels like more and more money is being skewed that way, which just it's hard not to feel like we're kind of heading towards 2021 again.

[00:04:29] Yeah.

[00:04:30] So just I guess the takeaway here is, guys, it's a bull market.

[00:04:34] There's money to be made.

[00:04:35] There's fun times to be had.

[00:04:37] There's money to be made.

[00:04:38] Money is made in bull markets.

[00:04:41] And you get a few really long running ones in an investing lifetime.

[00:04:46] And that's where you got to really stay invested.

[00:04:49] But it's also a reminder to like, just don't be crazy.

[00:04:53] I think Howard Marks had a nice little appearance.

[00:04:57] I think he was on Bloomberg yesterday.

[00:04:58] And he's basically just like, hey, look, these are the times you got to stay invested.

[00:05:03] You got to be in the market for these big runs.

[00:05:06] You got to be in the market for some of these days that just if you're not invested for those days, you'll just underperform heavily.

[00:05:14] But at the same time, like, yeah, like don't be silly.

[00:05:18] You should have a little bit of scars under your belt from last time this has happened in the past.

[00:05:24] Don't be silly.

[00:05:25] All right.

[00:05:25] So you and I, we have a couple segments today.

[00:05:28] You're going to talk a little bit about some earnings and some notes that you've put together from companies you've been looking at.

[00:05:35] And then I'm also going to talk about the dichotomy of performance between what I'm calling the TikTok generation and these big legacy brands and some of the trends and like how to not get smoked by some of these trends is like kind of the takeaway.

[00:05:54] But why don't you give us your first, like, what's your, what are you most excited to talk about here earnings wise?

[00:06:02] Oh, most excited.

[00:06:04] I mean, we could talk through some of the streaming stuff because Disney reported earnings last week and it's kind of just an interesting topic because the streaming awards.

[00:06:18] Netflix reported too already, right?

[00:06:20] Yeah.

[00:06:21] They reported, I think they're usually one of the first big ones to report.

[00:06:24] So theirs was probably two or three weeks ago.

[00:06:26] But it's Disney reported solid numbers.

[00:06:30] I mean, they gave out, I don't have all the specifics here, but they gave out long-term guidance that I think it was 2026 earnings guidance that got investors enthusiastic.

[00:06:40] The stock jumped a little bit.

[00:06:42] But the net subscriber ads for Disney Plus in total, which includes Hotstar and Disney Plus Core service was, it was okay.

[00:06:52] When you look back over two years, they actually have not grown paid subs.

[00:06:58] So two years ago, Q3 of 2022, they had 164 million paying subscribers.

[00:07:04] Today, 159 million paying subscribers.

[00:07:07] And so it kind of got me thinking to do not too much research, but going on FinChat and looking up every streaming company that reports subscribers.

[00:07:18] And so you've got Paramount with Paramount Plus.

[00:07:22] You've got Comcast who has Peacock paid subscribers.

[00:07:26] You've got Disney has ESPN Plus, Hulu, Disney Plus.

[00:07:30] There's even Warner Brothers does direct-to-consumer subscribers, but it's really HBO essentially.

[00:07:36] And then you've got Netflix.

[00:07:38] And if you look at it, Netflix over the last two years has added 60 million paying subscribers.

[00:07:45] And you might look at that and say, well, they cracked down on password sharing, so it kind of makes sense.

[00:07:51] Maybe they got some low-value subscriber ads.

[00:07:54] But really, if you look at the average revenue per user for Netflix, it's grown over the last two years in every single market except Asia Pacific.

[00:08:03] So it's not just these low-paying subs.

[00:08:06] They're really getting just as many high-value subscribers.

[00:08:09] And if you compare that to the industry overall, everyone that reports they're paying subscribers.

[00:08:15] So Disney Plus, HBO, Paramount, Hulu, Peacock, ESPN Plus, all six of those combined added 63 million over the same period.

[00:08:27] So Netflix almost added as many subscribers as pretty much the entire industry.

[00:08:32] And they're the only ones doing it from a profitable standpoint.

[00:08:37] So in the time, I think over the last two years, they've gone from 10% operating margins to 30% operating margins.

[00:08:44] So they're expanding profitability while adding more subscribers than pretty much the entire category.

[00:08:50] It just kind of feels like these streaming wars that have been going on for 10-plus years now are starting to kind of – we're starting to see spend on new content's kind of coming in.

[00:09:05] Who's going to be the winners?

[00:09:06] And it seems like it's primarily Netflix.

[00:09:09] YouTube as well has been a winner, but it's kind of a – sort of a different model, obviously, because it's not owned content.

[00:09:15] And then YouTube TV is kind of – it's hard to know the economics there, and they don't actually give out the subscribers.

[00:09:21] But really, it kind of – I guess this is all just to say it seems like Netflix is in the driver's seat here.

[00:09:29] They can spend –

[00:09:30] I'm looking at the chart that you posted.

[00:09:33] And so for those listening, it's Netflix's subscriber count, total subscriber count, quarter over quarter, and has a nice steady slope up.

[00:09:43] And then you've taken all the other streaming services and stacked them together.

[00:09:49] So it's basically Netflix versus everyone else.

[00:09:52] And one of these is not like the other.

[00:09:55] Like the Netflix red bar is so much materially better.

[00:10:01] And you just look at these other ones, and every subscriber – every subscription business, churn is the enemy, especially consumer subscription business.

[00:10:10] And churn is the enemy for Netflix as well too.

[00:10:13] Like no business doesn't – has perfect zero churn.

[00:10:17] But you can see how just a few percentage points in monthly churn that it is better than the other ones and how that compounds over time.

[00:10:26] Just right here in the data.

[00:10:28] And one of these things is not like the other.

[00:10:29] And I did just – I just pulled up as well while you're saying.

[00:10:32] Just like revenue per membership is up.

[00:10:35] So since December 19, it was $13.20 for US Canada and now up to over $17.

[00:10:47] While subscriber count's gone – added 100 million roughly.

[00:10:52] Yeah.

[00:10:52] That's incredible.

[00:10:54] Yeah, it really is.

[00:10:55] And the other thing is they aren't dependent on sports rights.

[00:10:58] A lot of these services, ESPN Plus especially, Peacock even to some degree because they have a big soccer league rights, which probably creates a lot of subscribers for them.

[00:11:08] The economics on those aren't great because you usually have a certain contract, certain duration.

[00:11:13] And at the end of that contract, the league's going to say, well, you either got to – whatever margin you made, you're going to have to add that to our next contract or we're going to go somewhere else with our sports.

[00:11:25] So Netflix has done it with primarily on content.

[00:11:28] They'll do live events to kind of drive excitement like they just did with the –

[00:11:34] They got to figure it out though.

[00:11:36] Oh my God.

[00:11:37] The infrastructure for streaming that Mike Tyson, Jake Paul fight was awful.

[00:11:42] I had a bunch of buddies who were over at – well, you know, Ryan, we're all at his place for, you know, sitting around the couch watching this fight.

[00:11:51] And it was impossible to watch.

[00:11:54] It was – it wouldn't – it wouldn't buffer.

[00:11:56] It wouldn't stream.

[00:11:57] It was frozen.

[00:11:58] Frozen on Mike Tyson's butt, literally.

[00:12:01] And then we found an illegal stream that was better.

[00:12:04] And we're like, wow, this Netflix has got to figure this out.

[00:12:08] Yeah.

[00:12:09] Yeah, that was certainly a red flag.

[00:12:10] And you weren't the only one that had difficulties either.

[00:12:13] Apparently 60 million people streamed it.

[00:12:15] So I guess – I don't know if it broke their servers or whatever.

[00:12:19] But yeah, I guess the point being is that they just have such a revenue advantage now that they're able to be – they can still spend more on content while increasing profit margins.

[00:12:31] They can spend more than their competitors on content while increasing profit margins.

[00:12:35] And they can be more flexible.

[00:12:36] They can try stuff like they're going to have with the NFL games on Christmas.

[00:12:40] There's just a lot they can do.

[00:12:43] It feels like they're in the driver's seat here.

[00:12:45] And it's hard to see them not expanding their leadership position from here.

[00:12:49] Remember the stock was on just such a pessimistic drawdown in the summer of 2022.

[00:12:58] Yeah, subscribers dropped for like one quarter.

[00:13:01] One quarter.

[00:13:02] The stock dropped 70%.

[00:13:02] And the reality was that those – that subscriber drop was actually them just cord cutting all their Russian subscribers, right?

[00:13:13] That was the reality of the drop in subscribers.

[00:13:16] Yeah.

[00:13:18] I remember –

[00:13:18] The stock since then – let me see percent change since then.

[00:13:22] The stock since that point is up over 5X.

[00:13:27] And this is actually a really good point of what I'll get into later today.

[00:13:33] But when a story is so different – when the consensus around a story is so different from reality, that's when stocks go nuts.

[00:13:42] Same with like the meta is a good example.

[00:13:45] This is a good example where it's like, ah, there's so much competition and they can't raise prices.

[00:13:51] Okay.

[00:13:52] They smoked their competition and they raised prices both.

[00:13:56] So the two big narratives around the stock were both just incorrect.

[00:14:00] And that's why you see the story like everyone go, oh, wait, never mind.

[00:14:04] We're all wrong.

[00:14:05] Let's re-rate this thing.

[00:14:07] Yeah.

[00:14:08] Yeah.

[00:14:08] This is also another example of letting your winners ride.

[00:14:12] And it's maybe like one of the biggest examples because for a long time, Netflix has constantly traded at a valuation that you'd probably say it's a little frothy or maybe it's a little bit of a premium.

[00:14:27] But then there's periods of massive drawdowns and it's just fulfilled the expectations or surpassed the expectations and constantly warranted the premium valuation.

[00:14:40] So when you've got something like this where it's a category that's ripe for a big winner, which is streaming TV, that's certainly been the case.

[00:14:50] And it can grow at above market rates for a long period of time.

[00:14:55] I think those are the ones where you kind of – when you own it and it gets a little extreme on the valuation side, maybe close your eyes a little bit and pretend it.

[00:15:04] Just don't even look at the valuation for a little bit.

[00:15:06] I'm actually reading right now Reed Hastings' book called No Rules of Rules.

[00:15:13] So I'm about halfway through it.

[00:15:14] I'll be done it pretty soon here.

[00:15:16] Yeah.

[00:15:17] Fascinating company.

[00:15:18] He is exceptional for sure.

[00:15:19] Talent density, I believe, is their kind of approach to everything.

[00:15:23] Like less employees pay a few really, really good employees really, really well.

[00:15:30] And he seems to work for them.

[00:15:33] One of the – the first chapter is – the whole – the book is called No Rules of Rules.

[00:15:38] So it's basically kind of like unlearn everything you know about like bureaucratic large corporate companies because they're not going to work at your startup.

[00:15:47] And the first thing he writes is like, just rip up the employee vacation policy and don't track it.

[00:15:55] And like we've never tracked it because I'm too lazy to track it.

[00:15:59] I'm like, oh, perfect.

[00:16:02] Reed Hastings told me I don't need to track it.

[00:16:04] So I don't need to go build that spreadsheet that's been on my to-do list for two years now.

[00:16:09] Thanks, Reed.

[00:16:09] It's a good book.

[00:16:10] If you look at big tech revenue per employee, Netflix is like way above everyone else.

[00:16:18] Now, some of the big tech companies like Amazon, they have lower margin revenues that might not make sense.

[00:16:23] But you can actually track that KPI on FinChat.

[00:16:26] If you chart it, NVIDIA has exploded recently.

[00:16:29] But other than NVIDIA, it has surpassed all other big tech companies, the Mag7.

[00:16:37] Well, you know, kind of similar on that same vein, brands resonating with the TikTok gen is what I want to call it.

[00:16:46] And the dichotomy of the performance of them.

[00:16:49] So I'm turning 30 this summer.

[00:16:54] You're a little bit younger.

[00:16:56] What do you consider yourself?

[00:16:57] You're like right in the middle of a millennial Gen Z, right?

[00:17:01] I think I'm technically Gen Z, but I don't want to be.

[00:17:06] It doesn't feel like...

[00:17:07] You don't strike me as the TikTok generation.

[00:17:11] So we'll let you...

[00:17:12] I'm not on TikTok now.

[00:17:13] You're not on TikTok.

[00:17:14] Yeah, you're an old soul.

[00:17:16] So please jump in.

[00:17:19] Let's be as anecdotal as we feel during this, because I think that that's kind of the point of this.

[00:17:26] Last week, I showed how few of the biggest companies in the world have remained dominant for multiple decades on the pod.

[00:17:33] Sorry, that only a few of them in the top 20 by market cap or the top 100 by market cap exist in that list today, basically.

[00:17:41] It's one of the beautiful things about capitalism.

[00:17:45] Forces innovation, new ideas, opportunities, etc.

[00:17:48] But it's also brutal, right?

[00:17:51] Like competition is brutal.

[00:17:52] Things change.

[00:17:53] Consumer preferences change.

[00:17:55] And brand stickiness changes as well.

[00:17:58] So I want to bring up a couple company examples and trends where there are clear headwinds and bring up the reality that the things that you may like as your generation,

[00:18:12] and this is going to happen again and over and it's happened with every generation since the dawn of civilization,

[00:18:18] they're going to like different things and they're going to buy different things.

[00:18:22] They're going to interact as a consumer differently.

[00:18:25] And the new generation that is about to become soon the largest population and the bulk of consumer spending is going to resonate with different things than previously.

[00:18:40] You're from Seattle.

[00:18:42] So, you know, Starbucks being an iconic brand.

[00:18:46] Have you noticed young people don't like Starbucks?

[00:18:51] Like there, dude, there's hundreds of, if you go on TikTok or search, just Google.

[00:18:59] I don't have TikTok either.

[00:19:00] If you Google boycott Starbucks, there's like 2000 TikToks of young people saying why you should cancel Starbucks.

[00:19:09] They're like the worst corporate company ever.

[00:19:12] Cancel them.

[00:19:14] It's absurd.

[00:19:15] I don't know why, but this is happening.

[00:19:19] So Nike stock is another example.

[00:19:22] Nike's down 13% of the last five years.

[00:19:26] Starbucks was on that similar trend.

[00:19:28] It got the Brian nickel jump here recently.

[00:19:31] But they've both heavily underperformed the SPY.

[00:19:35] Both companies have had declining revenues since 2023.

[00:19:40] The quarter over quarter sequential negative revenue growth.

[00:19:45] And so that's fascinating to see.

[00:19:47] You're seeing lots of new competition pop out in footwear and a long list of things.

[00:19:52] This is not really a comment on Nike or Starbucks, but that the fact that the brands that I love and my siblings love are just different than the people who are 1920 love today.

[00:20:06] They're just, they're just not the same brands.

[00:20:08] Yeah.

[00:20:09] Yeah.

[00:20:09] It's interesting with Nike's, it's kind of hard to see what specifically went wrong.

[00:20:15] Like you've seen sort of an onslaught of competition from, I think the company's called On Holdings.

[00:20:21] Yeah.

[00:20:22] On Running is the shoe.

[00:20:23] Hoka.

[00:20:24] Maybe there's some other ones as well that have just kind of gradually taken share and really, no pun intended here, burst onto the scene over the last two years, three years, I'd say.

[00:20:35] And it is starting to carve away at Nike's footwear revenue.

[00:20:39] I wonder if the brand's going to be, if it'll kind of be flash in the pan type of brand erosion where we look out 10 years from now and we're like, oh yeah, no, we expected Nike to grow or kind of move past that.

[00:20:54] Whereas Starbucks, they are facing a bigger headwind, which is people are moving more towards energy drink consumption.

[00:21:01] That has been a massive growing category, whereas coffee consumption, I believe it's either stagnated or declined over the last 10 years.

[00:21:11] So they kind of face a bigger headwind, not to mention they are a premium price point as well, which is kind of might deter certain younger generations also.

[00:21:22] So yeah, it's been interesting.

[00:21:25] Starbucks has declined traffic specifically.

[00:21:29] So transactions was down 10% year over year this quarter.

[00:21:35] And it's been negative.

[00:21:37] That's in North America, which is really-

[00:21:39] That's a number of transactions.

[00:21:41] Yeah.

[00:21:42] You can strip away price and stuff there.

[00:21:44] Yeah.

[00:21:44] Yeah.

[00:21:45] And if you look at the pricing growth and the traffic growth, it's just going two separate directions.

[00:21:51] Traffic has continuously declined over the last six or seven quarters.

[00:21:55] And then they continue to somehow raise prices.

[00:21:59] We'll see if Brian Nichols steps in and changes that a little bit.

[00:22:03] I suspect that he probably will.

[00:22:05] But yeah, they have some maybe larger overarching industry-wide headwinds that they'll have to face relative to Nike.

[00:22:13] It just seems like people are opting for different shoes at the moment.

[00:22:17] Yeah.

[00:22:17] Yeah.

[00:22:18] They have different problems, but they have brand loyalty issues, I think, largely.

[00:22:25] I mean, if you look at Starbucks, people used to take photos of their Starbucks drink with their name on it and post it on social media.

[00:22:35] I have not seen that in years now.

[00:22:39] You know, it used to be like a flex because it was a premium product at a premium price for coffee.

[00:22:47] Now, I don't know if it's just anecdotal, but so many good coffee shops here in the city that it is like a premium price for a very mediocre cup of coffee.

[00:22:59] So, they have a bit of an issue there too.

[00:23:02] Yeah.

[00:23:03] You know, Starbucks probably benefits from the fact that they offer an addiction to some degree.

[00:23:11] If we're thinking about like brand durability over the long run, apparel is fickle.

[00:23:17] Like trends change really quick.

[00:23:19] If you're selling something that's addictive like caffeine, you tend to be a little more durable.

[00:23:25] You look at some of the best performing stocks over the last 150 years.

[00:23:29] 100, 150 years, they're tobacco brands like Philip Morris and stuff like that that have been around for so long.

[00:23:35] It kind of allows the brand to last for longer.

[00:23:37] But yeah, I'll be curious if Starbucks can really recover from this.

[00:23:41] You're right.

[00:23:41] I didn't really think about it, but I have not seen someone post – maybe I'm just getting old, but I have not seen someone post a picture of a Starbucks cup in quite a long time.

[00:23:49] I used to see that all the time.

[00:23:52] Alcohol.

[00:23:53] Another big one.

[00:23:55] In Canada, according to the data from September year over year, Ontario, the province of Ontario's sales fell by 2% year over year.

[00:24:03] Quebec by 2.5%.

[00:24:04] Alberta saw a steep double-digit decline.

[00:24:09] Provinces like Nova Scotia down 4.2%.

[00:24:11] Manitoba down 6.7%.

[00:24:13] And British Columbia down almost 5%.

[00:24:16] So across the board, at the province level, of course, on the national level down, these are significant year-over-year declines in alcohol volumes, in my mind.

[00:24:29] In a single year, you see these trends happen year-over-year of like, okay, people stop smoking as much, people stop drinking as much.

[00:24:37] It's happening fast.

[00:24:38] It's happening fairly fast.

[00:24:40] 62% of – this is U.S. data – 62% of adults under age 35 say they drink.

[00:24:48] 20 years ago, that was 72%.

[00:24:50] So down 10%.

[00:24:52] 10% of young people age 35 and younger say – I guess from age 18 to 34 say that they drink.

[00:25:02] 10% less people.

[00:25:03] And among the adults that do, this is a study done by Gallup, young U.S. adults have cut back from an average of 5.2 drinks per week among drinkers down to 3.6.

[00:25:20] So that's down an average of 1.6 drinks per week among the cohort that do drink.

[00:25:28] Every alcohol stock that I can think of, I threw into a Finch app performance chart.

[00:25:34] And they're all basically down – even total return, even they're distributing a lot of cash and buying back a lot of stock have underperformed the S&P.

[00:25:45] So every generation has their kind of judgments against the new generation.

[00:25:49] It's a tale as old as time.

[00:25:51] You know, saying they don't – you know, they don't work hard, blah, blah, blah, blah.

[00:25:55] You know, they don't – you know, they can't relax and kick back and have a beer, you know.

[00:26:00] This happens every single generation.

[00:26:02] You know, we have people – young people work at our company.

[00:26:06] I've had the honor of working with some really smart young people.

[00:26:09] They're tech savvy and they work damn hard in my experience.

[00:26:13] Like you work hard.

[00:26:15] Like Damien, like these kids here – kids are fantastic.

[00:26:19] And they just have different brands they resonate with, different career aspirations, and different consumer preferences.

[00:26:27] The takeaway here is not any of these brands that we've discussed or alcohol consumption or Nike or Starbucks.

[00:26:35] The heart of the issue I'm trying to get at is as an investor, it's our job to not fight secular trends.

[00:26:43] It's a – okay, I don't understand their preferences or I don't agree with what they're saying or I don't agree with their career aspirations.

[00:26:56] But you know what doesn't matter?

[00:26:58] The market doesn't care what you think or what you care about.

[00:27:03] It cares about the underlying fundamentals and the story being told about these companies.

[00:27:08] And that's the story around these alcohol stocks is the data saying people under 35, 10% of them less are drinking on average.

[00:27:17] So money is lost when a story changes for the worse.

[00:27:22] If the fundamentals also change for the worse with real data, you get smoked in the stock market.

[00:27:30] So don't fight the data.

[00:27:32] Don't fight the trends.

[00:27:33] I think it's a really bad way to invest.

[00:27:36] I think value investors and recovering value investors have had to learn this really the hard way.

[00:27:43] Yes, the stock can look extremely cheap on trailing multiples or trailing stories.

[00:27:50] But that's not how these businesses are going to be valued in the future.

[00:27:55] Yeah, I agree.

[00:27:57] And it's – I want to like some of these companies because there's some real advantages.

[00:28:02] Like with Diageo, for example, or certain premium spirits, it's hard to grow.

[00:28:09] Like you either have to have a certain tequila farm in Mexico or cognac can only be grown.

[00:28:14] The grapes can only be grown in a certain area of France.

[00:28:17] And if you have a regional advantage, it's great.

[00:28:20] But at the end of the day, if less people are drinking your alcohol, you're constantly facing a new headwind.

[00:28:27] Like growth, a little bit of growth solves a lot of problems.

[00:28:31] And a lot of the companies, even the most advantaged here are going to be facing that.

[00:28:35] Side note too, because I saw your notes on tale as old as time, older generations,

[00:28:41] complain about the younger generations.

[00:28:42] I looked this up just to confirm.

[00:28:45] Socrates used to write a lot about how the kids just weren't working as hard.

[00:28:51] And they just – this younger generation, they got it too good.

[00:28:55] They got it too easy.

[00:28:56] And I like to think we've come a long way since then.

[00:28:59] So it is really – this is something that just constantly happens.

[00:29:04] You get old.

[00:29:04] The younger kids just don't have it the way we had it.

[00:29:07] And yeah, it is really a tale as old as time.

[00:29:11] A philosopher from the 300s BC is saying the similar story, right?

[00:29:20] Like this happens over and over and over again.

[00:29:23] And the takeaway here is the market doesn't care about your opinion.

[00:29:30] It's like a really hard reality, I think, sometimes for investors who want to just like

[00:29:36] think objectively, not get emotional, treat this seriously, and not fight the secular trends.

[00:29:48] I mean, this is not to say that there isn't an opportunity when you think or know that there's

[00:29:55] something seriously wrong about the consensus story in the market.

[00:29:59] Like that Netflix example we just used, that meta example in 2022.

[00:30:03] This happens as well.

[00:30:05] But I have 20 years of data of people drinking less, right?

[00:30:11] Like that's not a quick quarter of missing subscriber base in the market overreacting.

[00:30:20] This is a real fundamental secular trend that is really hard to fight and make money.

[00:30:27] It's really difficult.

[00:30:29] You know, if you look at it like tobacco in the 90s or something like that, like if you compare it to that era where it was clear tobacco consumption or cigarette consumption specifically was going to come down.

[00:30:43] Like they were going to be facing that headwind.

[00:30:46] Less and less people were consuming cigarettes each year, and it was very clear in the data.

[00:30:52] But it wasn't as competitive.

[00:30:54] You can't advertise, at least in the United States.

[00:30:57] I think it's similar in Canada.

[00:30:59] You're not allowed to advertise new cigarettes.

[00:31:01] So, it's not like there's these startups.

[00:31:03] We've seen a ton of startups in the alcohol category.

[00:31:06] Tons.

[00:31:07] Like the entire seltzer category, basically.

[00:31:09] Yep.

[00:31:10] So, I don't think-

[00:31:11] Yeah, all the beer brands were sprinting to own the latest hot seltzer.

[00:31:14] Yeah.

[00:31:15] Yeah.

[00:31:15] I don't think you're going to get the same sort of earnings development out of the big alcohol brands that you got out of the tobacco brands from 30 years ago.

[00:31:26] Even though the secular decline might look the same, and the tobacco brands were able to still grow earnings in the process because there's very little competition and they can increase prices, I think alcohol is going to look very different.

[00:31:37] Not to mention, there's been a lot of-

[00:31:42] Like you can have a differentiated opinion on some of these extremely attractively priced tobacco companies where you go, look, volumes are actually increasing and they're selling Zins left, right, and center or the Zin competition of these pouches that every hockey bro wants to throw in before a game.

[00:32:04] Like that is actually a real thing, right?

[00:32:09] So, that's a good example of where money can be made where the story is wrong.

[00:32:14] So, it's all about like understanding is the story that's being told, is there real fundamentals to back that up?

[00:32:24] And if there is one way or another, it's like pay attention because you can make a lot of money when a story goes from really bad to okay and okay to good and good to really good.

[00:32:39] But you can lose a lot of money when it goes the reverse, right?

[00:32:42] Like it's-

[00:32:43] You got to be careful.

[00:32:45] Yeah.

[00:32:45] Yeah, yeah, exactly.

[00:32:46] And there's a lot of alcohol brands that are not trading at the same discount that you get with other Zin stocks and they've got inventory issues and declining consumption and yeah, a lot of the issues they highlighted here.

[00:33:03] Let's have something more from you here about restaurants.

[00:33:09] This is a good-

[00:33:10] This might be a good segue.

[00:33:12] Yeah, for FinShad, I looked through basically all the earnings throughout earnings season, especially all the big ones.

[00:33:19] And I noticed a theme with especially the restaurant brands.

[00:33:24] It started with Chipotle and then I saw McDonald's and then I started to see I think Restaurant Brands International, tickers QSR, who owns Tim Hortons and I believe they own-

[00:33:36] Burger King.

[00:33:37] BK and KFC.

[00:33:39] There's another conglomerate too that owns like three.

[00:33:41] QSR is Tim Hortons, Popeyes, Burger King and Firehouse Subs.

[00:33:47] That's right.

[00:33:47] Okay.

[00:33:49] Basically, every single one was reporting sequential declines in comp store sales.

[00:33:58] And keep in mind that sequential.

[00:34:00] So they might have still had positive comp store sales.

[00:34:03] Like for example, we're going to talk about Tim Hortons here in a second.

[00:34:05] They had, I think, 2% comp store sales growth across their stores.

[00:34:10] But it was 3%, I think, last quarter.

[00:34:13] I could pull it up on FinChat really quick.

[00:34:15] So we're seeing sequential declines.

[00:34:17] And here to name the list of the ones I found so far that had sequential declines.

[00:34:23] It's pretty much every single quick service restaurant.

[00:34:26] McDonald's, Burger King, KFC, Taco Bell, Pizza Hut, Tim Hortons, Popeyes, Starbucks, Chipotle, Wendy's, Domino's.

[00:34:33] Every single one saw sequential declines in their comp sales growth.

[00:34:38] Is that seasonality though, a sequential quarter?

[00:34:40] No, because it's going to be year over year figures.

[00:34:43] Oh, yeah.

[00:34:43] It would be year over year.

[00:34:45] Right.

[00:34:45] So that summer versus the summer.

[00:34:48] Okay.

[00:34:48] Okay.

[00:34:49] Got it.

[00:34:49] Yeah.

[00:34:49] Yeah.

[00:34:50] And when you go through some of the conference calls, you start to see it's really consumers

[00:34:55] trading down.

[00:34:56] Consumers are spending less.

[00:34:59] Average ticket is really being pressured.

[00:35:02] They're voting with their wallets in most cases.

[00:35:05] And so specifically at brands where they weren't the value brand, like Starbucks, that's not

[00:35:12] someone that I scream value or scream low prices.

[00:35:15] You saw really big drops in traffic, minus 10% in North America.

[00:35:20] Popeyes, same thing.

[00:35:21] Their traffic fell off a cliff and the management team came out and said, we were not positioned

[00:35:27] well for the value conscious consumer at Popeyes.

[00:35:30] Tim Hortons, on the other hand, 2% comp sales.

[00:35:33] And they actually, I think I've got a quote here.

[00:35:35] It says, yeah, this is from the Restaurant Brands International Conference call.

[00:35:39] It says, Tim's in Canada delivered a 2.7% increase in comp sales, primarily driven by

[00:35:45] traffic growth.

[00:35:45] While we continue to see a softer consumer environment impact the broader QSR industry

[00:35:50] in Canada, Tim's number one restaurant brand love and number one value positioning allow

[00:35:55] us to maintain our leading market share.

[00:35:57] Domino's said something similar, which is like, we had a feeling consumers were going

[00:36:03] to trade down.

[00:36:03] We positioned ourselves well.

[00:36:05] I think Domino's had 5% comp store sales growth.

[00:36:07] And so we're just seeing this total shift from post-COVID companies where McDonald's

[00:36:16] was supporting, I think, double digit comp sales growth.

[00:36:18] And I think a lot of it was from average ticket, like inflation.

[00:36:22] People were, I think consumers were willing to pay up a little bit and brands would say,

[00:36:27] oh, it's inflation, but they were really driving average ticket higher and higher.

[00:36:31] Now you're seeing it be a little more discerning.

[00:36:33] You're seeing the same thing in a lot of the grocery stores.

[00:36:37] Walmart is reporting really strong numbers because they're where consumers trade down.

[00:36:43] When they don't want to spend premium prices on groceries, you end up at a value place like

[00:36:48] a Walmart.

[00:36:49] Or if you don't want to go to a Starbucks or you're pinching your budget and you're thinking

[00:36:54] Starbucks versus Tim Hortons, you're probably going to go Tim Hortons.

[00:36:57] So yeah, curious to see if this trend continues, but it actually kind of makes me feel if you're

[00:37:03] a Starbucks shareholder, maybe you feel a little more comfortable knowing that every other quick

[00:37:07] service brand struggled a little bit as well, but you kind of got to meet the consumer

[00:37:10] where they are, which means a little more discounting most likely.

[00:37:14] Yeah.

[00:37:14] It'll be interesting to see what Nickel does.

[00:37:16] I think that's a really interesting point about these brands because I look at them all as

[00:37:25] low cost, but you're right.

[00:37:28] I mean, for someone who's a little more cost conscious, you're going to get better bang

[00:37:33] for your buck between these.

[00:37:37] I remember going to Domino's Pizza and when I was in university, using the coupons and

[00:37:44] getting a medium walk-in, eat lunch and dinner for like $6.

[00:37:50] Yeah.

[00:37:51] It is way cheaper than groceries.

[00:37:54] Way.

[00:37:55] You can't eat at the grocery store for two meals for $6.

[00:38:00] No, I think it's like they finally had to get rid of their discount.

[00:38:05] That was like the promo was two pizzas, $7 each.

[00:38:09] And it was like iconic, like totally drove volume for them.

[00:38:13] There's two medium sized pizzas.

[00:38:14] They finally had to push it up a little bit.

[00:38:16] I believe I can't remember what the price is now, but yeah, I mean, that's, it's hard to

[00:38:21] beat that value and you're not going to get that other piece of pizza restaurants either.

[00:38:25] Like you go to any other pizza joint, you're probably paying more than 10 bucks for a pizza.

[00:38:31] Didn't Buffett just buy a bunch of Domino's?

[00:38:33] Yeah.

[00:38:34] He owns 3% of the company now, I think.

[00:38:37] Oh, wow.

[00:38:38] We talked about this last week.

[00:38:40] I think it was Simone and I talking about this, about Buffett's huge cast position and

[00:38:46] the Buffett indicator.

[00:38:48] What's your quick read on this?

[00:38:49] Is this, is this an, a huge offload of Apple or is he really not finding value or can't

[00:38:58] deploy?

[00:38:59] What's your quick take?

[00:39:00] Everyone has a take on this.

[00:39:01] I want to know yours.

[00:39:03] I have a theory that he's trying to give, Buffett's obviously getting up there in years

[00:39:09] and he's trying to give his lieutenants a clean slate.

[00:39:13] He's a young lad.

[00:39:14] Yeah.

[00:39:15] I mean, people said this 10 years ago that he's getting up there in age, but I think

[00:39:21] he's probably trying to give his lieutenants a bit of a clean slate.

[00:39:26] I might be reading into it too much.

[00:39:27] Whereas if you're his lieutenant, Todd Combs or Ted Weschler, and you inherit a portfolio

[00:39:33] that is 40% Apple trading at 40 times earnings with very little growth, your scorecard's probably

[00:39:41] not going to look that good.

[00:39:44] I mean, 10 years out, it might be tough to really, one, it's hard to find positions that

[00:39:51] can be large enough to impact it when you own, when 40% of your portfolio is Apple and

[00:39:57] you have that much in cash.

[00:39:58] So I think if you have a whole bunch of cash and you kind of sell off some of the more expensive

[00:40:03] assets, maybe he's waiting for the right pitch, but I think it makes it a little easier

[00:40:09] on his lieutenants from here.

[00:40:11] Some people are speculating there's a diffident coming, but he's never done it yet.

[00:40:17] I'd be surprised if it happened now.

[00:40:19] So I don't know.

[00:40:20] That's kind of my take is maybe making other than the operating businesses starting to reduce

[00:40:26] some of the equities and give a cash portfolio more to his lieutenants.

[00:40:32] Yeah, it makes sense.

[00:40:33] I mean, especially around the Apple position because it just had become such a giant piece

[00:40:40] of the equity pie.

[00:40:41] I think it was what?

[00:40:42] Was it over half or 40?

[00:40:45] I'd have to look.

[00:40:46] I don't think it ever got over half, but it was a huge piece.

[00:40:49] In that ballpark.

[00:40:52] And yeah, so the clean slate thing happens.

[00:40:55] It's funny.

[00:40:56] I mean, yes, I think the market is frothy, but people are saying, oh my God, this Buffett

[00:41:01] indicator is when he's holding this much cash.

[00:41:03] I'm like, have you looked at the cash and cash equivalents on a chart?

[00:41:07] It's been going up.

[00:41:09] This is not new.

[00:41:10] It's in the hundreds of billions now.

[00:41:12] And I remember being on this podcast years ago and going, oh my God, he's got 160 billion

[00:41:20] in cash now.

[00:41:21] What does this mean?

[00:41:22] You know, like looking into the tea leaves and now it's double that.

[00:41:27] And the market's ripping.

[00:41:29] It's such a, it's crazy to put that as some sort of indicator in my mind because there's

[00:41:35] just so many external factors that you and I won't not know the answer and no one will.

[00:41:40] And so that's why I think people are just speculating.

[00:41:43] Yeah.

[00:41:43] And you don't know what percentage of that they're mostly allocating to like insurance

[00:41:48] reserves as opposed to them saying, I want to store up cash and buy treasury so that we

[00:41:55] can get some mammoth deal when things turn sour.

[00:41:59] I mean, a lot of it could be they want more for insurance reserves or, you know, maybe they

[00:42:04] find treasuries attractive.

[00:42:06] But keep in mind, they're fishing in a different pond.

[00:42:09] Like they bought 3% of Domino's, one of the biggest pizza chains in the world.

[00:42:13] And it's 0.2% of their equity holdings.

[00:42:17] Like they cannot, there's less opportunities for them.

[00:42:21] Oh yeah.

[00:42:23] Yeah.

[00:42:23] Yeah.

[00:42:23] I mean, and he's talked about that so much, right?

[00:42:26] Like the returns he was getting on a small pile of money and the way that they were investing

[00:42:31] was so, so materially different.

[00:42:34] He says that in the shareholder meeting every year.

[00:42:36] He's like, guys, like what you're able to do sitting on the floor is just such a better

[00:42:42] position to be in than what I can do.

[00:42:45] Like that's how I read it every single time.

[00:42:48] Yeah.

[00:42:49] I mean, think like the number of companies that can actually make a difference to his equity

[00:42:53] portfolio, like probably really low.

[00:42:57] Like you could go down the market cap list and once you're probably 100 to 200 companies

[00:43:02] in, that's it.

[00:43:03] Like if you haven't found a company in that pile, it's probably not going to impact your

[00:43:07] overall portfolio.

[00:43:09] Yeah.

[00:43:10] Makes sense.

[00:43:11] I mean, it's just such a different constraint to deal with, but.

[00:43:15] A good one.

[00:43:17] I think I said to Simone, the actual Buffett indicator should be people on Twitter saying that they're

[00:43:22] smarter than him.

[00:43:23] It's like a real time to get defensive in the stock market.

[00:43:27] Yeah.

[00:43:28] Yeah.

[00:43:29] My returns are beating him for this week.

[00:43:32] For this week, this hour, this minute.

[00:43:37] Well, that does it folks.

[00:43:39] Thanks for tuning in.

[00:43:40] Anderson, thanks for joining the pod.

[00:43:42] Where can folks find you?

[00:43:44] I will say I'll do a plug for the account you manage, which is the FinChat Twitter account

[00:43:51] at FinChat underscore IO.

[00:43:52] You've brought that account to zero to what?

[00:43:55] Like 35,000 followers in the last year or so.

[00:43:59] Somewhere in that ballpark.

[00:44:01] I don't think it's at 35 yet, but hopefully soon.

[00:44:05] Yeah.

[00:44:05] 30 something roundup.

[00:44:07] Yeah.

[00:44:08] There's endless content to post from FinChat, honestly.

[00:44:11] Like so many different valuable data points and comparing companies to one another with

[00:44:18] the KPIs.

[00:44:19] And it seems to have resonated a lot on the Twitter sphere with our followers.

[00:44:25] So yeah, there'll be plenty of more content to come.

[00:44:28] And where can the gang find you?

[00:44:29] Yeah.

[00:44:30] I think you'll be frequented on the pod more and more these days.

[00:44:33] So people probably want to be able to see where they can follow your stuff.

[00:44:36] Yeah.

[00:44:38] If you enjoyed this and you want to hear more, I co-host a podcast of my own called Chit

[00:44:43] Chat Stocks.

[00:44:44] I'm also on Twitter on my actual page, which I don't use as much anymore because I'm mostly

[00:44:51] on FinChat, but I think it's CCM underscore Ryan.

[00:44:56] But yeah, really, if you want to hear my thoughts, it's going to be all on the podcast.

[00:44:59] Chit Chat Stocks.

[00:45:00] Beautiful.

[00:45:01] Thank you, man.

[00:45:02] And for the listeners, you can support the show on the Patreon at joinTCI.com.

[00:45:09] That's our $9 a month portfolio update Patreon.

[00:45:14] And if you haven't given the show a rating on Apple Podcasts or Spotify, that is much appreciated.

[00:45:21] You can throw in there, give a little rating on Apple Podcasts.

[00:45:25] If you're on Spotify, you can throw a certain number of stars and then press follow and

[00:45:30] then the pod will automatically come into your feed.

[00:45:32] Helps us a lot, costs nothing, and we appreciate it very much.

[00:45:37] We'll see you in a few days.

[00:45:37] Bye-bye.

[00:45:38] The Canadian Investor Podcast should not be construed as investment or financial advice.

[00:45:44] The hosts and guests featured may own securities or assets discussed on this podcast.

[00:45:50] Always do your own due diligence or consult with a financial professional before making

[00:45:55] any financial or investment decisions.