How Important is Luck when Picking Stocks?

[00:00:00] This is the Canadian Investor, where you take control of your own portfolio and gain the confidence

[00:00:07] you need to succeed in the markets.

[00:00:10] Hosted by Braden Dennis and Simon Belanger.

[00:00:15] The Canadian Investor Podcast welcome into the show, my name is Braden Dennis.

[00:00:22] As always joined by the Graceful, Simon Belanger.

[00:00:27] We are back in the saddle, you and I haven't sat down recorded in a couple weeks.

[00:00:32] I'm pretty pumped.

[00:00:34] I was just on a trip through Southern California and I had never been to California before.

[00:00:41] I had never even been to the West Coast either.

[00:00:43] You've never been there?

[00:00:44] I've never been there.

[00:00:45] No.

[00:00:46] As East Coasters it's just like so classic to go to Florida, 400 million times before you

[00:00:55] venture anywhere else in terms of going somewhere warm.

[00:00:58] But I liked it man, I mean there's what's not to like.

[00:01:03] The hype about the weather is real.

[00:01:05] You wake up and you're like, oh, it's perfect again.

[00:01:08] Great.

[00:01:09] I mean I've been to Vegas multiple times.

[00:01:12] I've been Vegas six or seven times but that's because I enjoyed playing poker but never

[00:01:18] made the trip to California although Vegas is very popular with Californians because I

[00:01:23] think you can drive there in like four hours or fly in like less than an hour.

[00:01:27] That's right, you can just drive and I actually played golf with some guys who are some younger

[00:01:33] guys and one of them goes to the University of...

[00:01:37] It was spring break so he goes to the University of Las Vegas and then he was back in San

[00:01:42] Diego to golf and I was at this plane with his two buddies.

[00:01:46] They're San Diego State D1 golfers who are going to be going pro.

[00:01:52] One of them just casually shot a 66 and I didn't even know like that's how good he was.

[00:01:59] I didn't even notice he was six under, you know through 14 holes.

[00:02:05] Like it was absolutely absurd.

[00:02:07] Just playing with that level of player and just kind of tapping into their mindset too

[00:02:13] just like so intense such a young age and so committed to the game.

[00:02:19] Like it was pretty...

[00:02:20] It was pretty awesome.

[00:02:21] Yeah I find it's interesting with athletes.

[00:02:24] I was like I've noticed that like the fast few years were...

[00:02:28] I find you have two types of personalities.

[00:02:31] You have the ones that are like so intense like you said they're so focused on it like

[00:02:35] it's your job like they'll do anything and then you have the other kind that are equally

[00:02:41] as successful but for them it's all about having fun and if they stop having fun the performance

[00:02:47] actually goes sideways.

[00:02:49] I don't know if you've noticed that too but there tends to be like in a lot of athletes

[00:02:53] it is like that you have these like you know like you said like super business focus and

[00:02:59] then the other ones that you know they put in the work but maybe differently a little

[00:03:02] bit but for them if they don't have fun they lose all interest and the performance

[00:03:08] goes sideways too.

[00:03:10] Yeah I think that makes sense right?

[00:03:12] Like it's like anything you know if we didn't have fun doing this podcast what do we...

[00:03:17] episode like 375 now?

[00:03:20] It's getting dark.

[00:03:22] If we didn't have fun doing it I mean we still wouldn't keep doing it.

[00:03:27] I got to tell you about someone I met, I'm out of conference and I meet this guy

[00:03:33] and I'm obviously going to keep an anonymous for many reasons.

[00:03:36] That's fair here.

[00:03:37] He was telling me about this fund that he was co-managing in 2007 was 5X Levert.

[00:03:47] It had 20 billion dollars but it was 5X Levert so the AUM was 100 billion in total.

[00:03:59] It blew up of course without much leverage going into 08.

[00:04:04] The entire fund was just a few hundred million dollars from 100 billion and this guy

[00:04:12] was telling me how he had to like save the fund, the other guy left and like he actually

[00:04:17] recouped it back to like 6 billion a.m. before he moved on.

[00:04:22] But dude leverage man, just listening to this guy's story.

[00:04:28] I sat down with him for probably two or three hours at this conference.

[00:04:34] I mean I was supposed to be meeting with all these people and I was just enthralled by

[00:04:37] this guy's story.

[00:04:39] We're sitting out on the patio at the Mary at Hotel and I'm just like learning about the

[00:04:44] ins and outs of the blow ups that happened in 07 and 08.

[00:04:49] And of course you and I know about them but to get them first hand experience from someone

[00:04:53] who was managing 100 billion dollars and Levert to the tits, it was, dude I was like shook.

[00:05:03] I was like shook for like 3-4 hours after that conference.

[00:05:06] It was pretty awesome.

[00:05:07] Yeah I mean leverage, leverage I mean it cuts both ways right?

[00:05:10] And especially in Canada where people they probably are the most familiar with being

[00:05:15] Levert if they purchase a home right?

[00:05:18] And I don't know about you maybe not as much because you're a bit younger but for me

[00:05:21] the perception I got is maybe, you know let's say maybe not the last two years but before

[00:05:27] that it was basically like you're stupid if you're not investing in real estate because

[00:05:33] you're essentially you know you're buying with debt, you're leveraging it up and it's

[00:05:38] boosting your profits.

[00:05:40] But it cuts both ways.

[00:05:41] It goes the other way around you can get wiped out because you're over levered and whether

[00:05:47] it's real estate, whether it's investments investing in stocks, levered obviously crypto

[00:05:53] there was even more craziness happening during the bull market where I was like I think

[00:05:58] we could get like 100 extra one something like that in certain sites but I think it's

[00:06:03] a good reminder yes you can really boost your profits if it goes well but at the same time

[00:06:08] you can also get wiped out so just be aware because leverage is it's fun when it works

[00:06:15] and it's a disaster when it doesn't.

[00:06:17] It certainly cuts both ways I think that's a good summarization of it.

[00:06:22] Dude have you lost California thing?

[00:06:26] Have you heard or at least know about the burger franchise in and out?

[00:06:31] I've heard of it but I've never been yeah.

[00:06:34] I think it's only in seven states on the Southwest coast of the US.

[00:06:39] People have seen the logo and many people have listened or have been there and tried it out.

[00:06:45] So the first one I've heard of that, I've heard it's very famous people go let's like

[00:06:49] thing you go try when you're in California.

[00:06:52] So the first one we saw in L.A. was near Hollywood like the day of the gravies or the Oscars

[00:07:00] or the gratitude.

[00:07:01] So out of touch.

[00:07:02] I think it would have been the Oscars recently.

[00:07:05] I mean, I don't know all I heard movies one right?

[00:07:07] Yes the Oscars.

[00:07:08] Yeah.

[00:07:09] Oh I heard and I didn't even watch any part of it is John Cena was almost naked that's

[00:07:14] the only thing I heard about it but you can't see John Cena has had it anyone know.

[00:07:21] So I expect this place to be jammed because it's the day of the Oscars in Hollywood so

[00:07:28] okay this place is jammed it's probably all tourists.

[00:07:33] I saw several more and one including like not a tourist the area North like inner downtown

[00:07:41] San Diego in kind of like not even like the best area.

[00:07:46] And I kid you not the drive through had 20 cars each line and there were two lines.

[00:07:55] The inside was like an absolute zoo.

[00:07:59] Chaos it's not like it's not tourists this is this is this is Pete this is real people

[00:08:04] who live there and I've never seen anything like it the hype around this burger joint

[00:08:12] the locals like stand by it they love it.

[00:08:17] And I suspect there is no better unit economics per location of any fast food concept in

[00:08:27] the world like I can't think of any location location based economics that compares to

[00:08:35] it anything close to it.

[00:08:37] I was amazed I couldn't believe it I thought the food was extremely average but people

[00:08:42] get you in and out.

[00:08:45] And it's pretty cheap like it's not it's still pretty cheap like fries or two bucks a

[00:08:50] burger's 350 like it's not expensive kind of reminds me of because I have family in

[00:08:55] Syracuse and we went to Chick-fil-A over there same kind of thing there's like two drive-through

[00:09:00] lanes and you think the line is going to be pretty long and within like 10 minutes

[00:09:07] you're like you have your food you've ordered and everything so they're pretty efficient

[00:09:11] I don't obviously haven't been to that one but it kind of reminds me of that the way

[00:09:15] you explain it.

[00:09:16] There's actually people on foot that come and take your order way way back yeah well they

[00:09:23] did the same yeah Chick-fil-A too so I think it's okay yeah so it sounds very similar yeah

[00:09:28] but it was so like America just the whole thing is just so America but dude I would love

[00:09:37] to see the financials of this company it's it's privately owned no plans of ever going

[00:09:43] public from my quick research I would love to see this thing go public and get a look

[00:09:50] under the hood because it is a real phenomenon it's it's unbelievable to be there and to

[00:09:57] look at it and to see people wait that long for a burger frankly I think is better at McDonald's

[00:10:04] but you know that might be a hot take yes I don't know for me I love my burgers just

[00:10:09] like chip trucks just because I find them like just you know the weird the meat doesn't taste

[00:10:15] weird it tastes like a burger at home and stuff like that and the fries are always the

[00:10:19] best I find a chip trucks but you can't replicate that as much as you would with a chain right

[00:10:26] and the fries are always hot when you get it from those things oh yeah yeah fries in an

[00:10:30] outward legitimately not even lukewarm they were cold so yeah I liked your first topic I have

[00:10:40] certainly my takes on this as well yeah I'm curious how you're gonna take this one yeah no and

[00:10:46] so this was inspired by Jerry who's one of our listeners from the UK big thank you for making

[00:10:52] the podcast international by the way obviously we have listeners around the world but the

[00:10:57] majorities in Canada and his question was sent around Nvidia and kind of the luck aspect around

[00:11:03] it but I am gonna take it a bit more as you know how much just luck have influence on

[00:11:08] investing and whether you have good returns or not and his question just to summarize it was

[00:11:15] you know how lucky were people who bought Nvidia around September October of 2022 when it kind

[00:11:21] of bought them because evaluations was still high at the time now I agree the valuation was in

[00:11:27] cheap in a traditional way with Nvidia trading in the high 40s on both a price of free castle and

[00:11:33] price to earnings basis however I will push back a little bit where that valuation if you look at

[00:11:39] Nvidia is more like the last five six years it was definitely towards the lower end but as a general

[00:11:46] rule I mean kind of everything tech was a bit down around that point in time it's pretty much when

[00:11:53] I think we bought them in 2022 for tech stocks and then everything getting started picking back up

[00:11:59] afterwards and my view is that luck there's a luck aspect obviously centered around that because

[00:12:07] you know around the launch of Chad GBT and that happened in November 30th 2022 so clearly people

[00:12:14] that bought it around the bottom September October you know some people may have read or had

[00:12:20] information that something like this may be coming soon but I think you know to know what impact it

[00:12:27] would actually have on Nvidia there's definitely a probably at least a decent or fairly large

[00:12:33] element of luck at least to the investors that were probably not as well informed as some other

[00:12:39] investors in the AI space and obviously being able to anticipate how much of you know kind of

[00:12:47] arms race I would say probably the best term to use here from the big tech company to build up

[00:12:53] the infrastructure needed to lose used old large language models and what impact it would have

[00:12:58] on Nvidia I think obviously that brought like that would have been very hard to foresee that I don't

[00:13:04] know what are your thoughts on that if you look at revision history on estimates the estimates

[00:13:13] skyrocketed right after this point when every analyst covering the name may have had insights into

[00:13:21] you know how cutting edge their GPUs were I think that that was actually consensus across

[00:13:27] anyone who studied the sector really well so it was it was well known that Nvidia was leading it

[00:13:34] especially with their compiler language called kuda that they were leading both the hardware and

[00:13:41] the software when it comes to GPUs and how it will help AI because that's the way GPUs work and

[00:13:49] it's able to do all these computations in parallel which is so much better than anything that anyone

[00:13:54] else had built so people knew that they were the industry leader but to your point there

[00:14:02] even people who studied the business in and out as their job you know covering Nvidia stock

[00:14:08] professionally as an analyst revision estimate like revision history on forward estimates sky

[00:14:15] so that was not consensus whatsoever that there was going to be that arms race that the data center

[00:14:21] was not only going to grow you know double year over year but double quarter over quarter like that was

[00:14:32] not well understood by anyone and so that's why the stock went nuts so if you're to look at it back then on a valuation perspective

[00:14:41] on a forward metric it was like incredibly incredibly cheap now where I don't think was lucky is people

[00:14:49] who saw those forward estimates and thought this stock is incredibly incredibly cheap even after

[00:14:59] it had like doubled last year it was only trading at high teens forward earnings and that was

[00:15:07] stocks like 3x since then so I don't think it's lucky that people who are really paying attention to the tech

[00:15:16] and paying attention to the story on the data center but of course hindsight 2020 now two years later

[00:15:22] like it's pretty easy to see that there was going to be a compute build out yeah I mean I think they were probably

[00:15:27] the way I probably see it and I'm a bit different than you here is they I think they were probably

[00:15:34] right for the wrong reasons I don't think they first saw how quickly it would build up but they knew

[00:15:40] that you know maybe they had an idea of it would be a big tailwind for them but the time frame obviously

[00:15:47] they they probably had more difficulties I mean I think we are seeing it with how the prices reacted

[00:15:52] and analysts and everyone so I think that's fair to say I mean I think just to extend I don't think

[00:15:58] anyone anticipated how quickly the build up and the demand would be for those chips so that's where

[00:16:04] I mean maybe the luck aspect is a little bit there but again if someone invested then with the idea

[00:16:09] of honing it for like five six seven years then I think the time aspect kind of negates the luck

[00:16:15] aspect a little bit because then you're looking at it from a longer time frame whereas someone who

[00:16:19] invested then and be like okay I'll invest for like a year because I think it's happening in a year

[00:16:25] I think there's a much larger element of luck there fair enough and just to continue on the luck aspect

[00:16:31] and maybe you'll disagree with me here but I did ask speaking of Chad GPT what is luck so they

[00:16:38] responded obviously a more a longer answer but the first sentence I think sums it up pretty well

[00:16:44] luck is a concept that refers to the experience of notably positive negative or improbable events

[00:16:50] so I think do you agree with the definition I think that's a pretty decent definition of luck

[00:16:56] yet to if I was to define luck or how would you yeah bring it GPT well I'll tell you what I think

[00:17:06] about luck later but the way I define luck is encountering unlikely events to the positive

[00:17:16] I know it says your positive negative or improbable I don't think of luck ever as like I got lucky

[00:17:22] and it was a negative outcome but maybe by definition are wrong I'm not sure I would yeah per I mean

[00:17:28] I know what you're saying for me I would place unlucky and lucky kind of the just the same it's just

[00:17:34] unlucky yeah exactly that's kind of the way I would see it but personally I don't think it's

[00:17:40] possible to completely eliminate luck when investing in a specific company no matter how well

[00:17:47] you know a specific company because there is always going to be an element of luck and an investment

[00:17:51] there's countless examples of that but I'll just say a couple here I don't know if you remember

[00:17:57] PG&E so Pacific Gas and Electric back in 2019 they had to declare bankruptcy because

[00:18:03] they were utility and they were held responsible for some forest fires in California and

[00:18:10] typically utility I mean is considered to be as safe as it gets right in terms of equity investment

[00:18:17] and that's a bit of a non-foreseen event obviously it was in a zero probability because there was a

[00:18:23] small chance I'm sure no matter all smell that it could happen but there is definitely probably a

[00:18:29] certain set of series of unfortunate events that kind of led to that and having them file for

[00:18:35] bankruptcy another one is you know companies that got completely crushed because of COVID-19

[00:18:41] and never fully recovered I know some are still theirs but if you look at for example the cruise ships

[00:18:48] they are so operating but they're definitely not in as good a shape as they were back then obviously

[00:18:54] some companies did very well some others didn't or on the other side companies that

[00:18:59] completely like took off and are still doing quite well today because of COVID-19 pandemic and how

[00:19:06] that's changed the way we work or interact and all these things so those are kind of example

[00:19:13] to me that there is definitely an element of lug but to be fair there's definitely companies that

[00:19:19] will be more dependent on lug components than others I mean I think farmers like biotech companies

[00:19:26] right that are testing out these new treatments I mean they can do all the research day one but

[00:19:31] until they start testing that I don't want to say like it's not a space I know super well but there

[00:19:37] has to be an element of lug that what they're studying and they're kind of the research they've

[00:19:43] done already will actually result in the expected or the hope results when they start doing all the

[00:19:50] testing so I think you know my view is that there's definitely an element of luck in every investment

[00:19:57] I think for some investment it's incredibly low but it's a non-zero impact there's just

[00:20:03] things that are on first seen or a very very small probability that most investors would not even

[00:20:09] place any probability on that can happen and obviously that's where I think the lug component comes in

[00:20:15] but I think you can also mitigate that through diversification not only through single asset class

[00:20:23] such as stocks so not only diversifying with just a lot of stocks but also different asset classes

[00:20:29] also allocating a smaller allocation if you think there's a bigger luck element tied to the

[00:20:34] returns of a company another example I can give is you know a few years back with Virgin Galaxy

[00:20:42] like a lot of people were almost like gambling on that if you'd like well I mean a lot of things

[00:20:47] had to go right for Virgin to do well in the future. That was the Chimath Spac right I think it was a

[00:20:53] Spac yeah is it Chimath Spac yeah Chimath Spac. He put out the four IPO ABCD I believe

[00:21:05] okay Virgin Galactic was one of them was okay and I mean that's an example but obviously I think

[00:21:14] the way I try to look at things is just assessing the probabilities of a unforeseen event or

[00:21:21] unprobable event whatever you want to call it because there are some events that whatever investment

[00:21:27] you're doing there are certain type of events that you probably are not assigning any probabilities

[00:21:34] and I try to sign even if it's a small probability to just you know the possibility of my investment

[00:21:41] not doing well or incredibly bad because you know let's say there's a 2% chance of like something

[00:21:48] unforeseen that affects completely their business and I try to incorporate that when I actually

[00:21:53] make an investment in a specific company if that makes sense. The book that I read last year the

[00:22:00] Morgan Housel one has a lot of good thoughts on yeah I was thinking about that one yeah yeah

[00:22:06] in general just like these extremely kind of random outcomes like random events that dictate so

[00:22:13] much of the future and are completely kind of unknowable yeah and impossible to predict.

[00:22:21] And I think there is that element of what we'll call luck or randomness or whatever you

[00:22:31] might want to call it that's definitely a factor and has a huge outcome on everything moving forward

[00:22:37] and read Morgan's book I mean there's so many countless examples. Oh yeah I did you know I know

[00:22:42] I did I mean to the listeners read the reading book it has lots of good thoughts on this

[00:22:49] that being said there are a couple examples here that I'm thinking of especially on the tech side

[00:22:56] whether it's AI and video or whatever else here the covid example moving forward a lot of stuff

[00:23:04] there is it a couple examples here where luck just or some random event just brought forward a

[00:23:13] lot of momentum to a trend that was already already happening. Whether it was e-commerce or AI

[00:23:20] there's these kind of outlier events or launches or things that happen that kind of just like five

[00:23:26] years happened in two days among the like long trend that it probably would have gotten there

[00:23:31] regardless just might have taken an extra five years. So there there is situations where investors

[00:23:38] can position themselves in a way for luck to happen to them or for outsized returns to happen

[00:23:45] to them or for a tail outcome so far out on a normal distribution curve to stumble upon their way

[00:23:53] like that's that's how I think about luck when it comes to investing. No yeah that's fair yeah and

[00:23:58] I mean maybe for me it's also because I come from a bit of a poker background right and you have very

[00:24:04] few situations where like I mean there are certain situations at the you know the situation is

[00:24:11] done and there's not really a luck element because you know all the cars have been dealt then as

[00:24:15] long as you don't fold you'll will you'll win the hand but you know when there's still cards remaining

[00:24:21] even if you have a 98% chance probability to win I've seen the 2% happens. You tend to remember

[00:24:30] the 2% when it happens against you don't really remember it when it happens in your favor but

[00:24:35] that's just a magic of the human brain but I just found it fascinating because Morgan's book

[00:24:42] I think is great because he if I remember correctly one of the things he says in the book is that

[00:24:47] there the probability of something bad happening is actually quite high because if you add in all

[00:24:53] the different probabilities that you know our hurricane might happen the pandemic might happen

[00:25:00] and major war might happen if you add all these things a solar flare might happen like if you

[00:25:04] had them all up the probability of one of them happening is actually quite high in any given year

[00:25:10] right and it's like if it if it can happen on a long enough time horizon it will happen

[00:25:16] it's like the thing for interstellar there's some law in there some space thing in there

[00:25:22] no and I think that this is this is directly correct luck in my mind around career or things

[00:25:33] that you want to make happen that don't rely on a lot of outside forces to go right or some macro

[00:25:42] perfect storm to occur I think of luck a lot differently in luck being surface area and the same

[00:25:50] way that a fisherman tries to catch fish is if you're trying to catch fish and you have

[00:25:58] a net set up on in like at your camp it's lucky if a fish swims in there during a in a short period

[00:26:06] of time just that it's just not very common but if you had a net that was 10 20 times bigger took more

[00:26:15] surface area and was positioned in a more effective spot you've now changed your odds of success and so

[00:26:26] that same way that that net has a larger like volumetric area for fish to swim through

[00:26:34] luck is a surface area in the fact that the more times you have luck being able to come across

[00:26:42] your plate then you can increase your odds of success and so when it comes to pure luck like say

[00:26:49] it's like rolling dice like there's nothing I can do really to change the odds of a standard normal

[00:26:57] set of dice dice if I roll them infinite amount of times I'll come up with a distribution curve

[00:27:03] of combinations of how I could roll two dice that's that's not going to change that's like straight

[00:27:09] up just true statistics and mathematical probability where luck becomes a little bit more abstract is

[00:27:18] oh he just got lucky you know like that type of saying or that might be true but what people don't

[00:27:25] see in the background is that person expanding their surface area of luck to happen so this is

[00:27:34] where it becomes like you know luck in a more you know abstract version of it and luck in the

[00:27:41] like true probably probabilistic statistic version of it if I roll two dice 10,000 times.

[00:27:48] No and that's no that's I think that's that's a good way to put it and I mean it's maybe it's

[00:27:54] also like the way our brains sink right for me it's always like I don't know why I just come back

[00:27:59] to thinking probabilities too that's kind of what drives me a whole lot so I always try to assign

[00:28:05] a probability just based on that but I guess the the last thing I'll mention is someone could do like

[00:28:10] you know we're thinking about a company they could do all the research they can have the best thesis

[00:28:15] everything makes sense everything lines up and you know something that's out of their control or

[00:28:21] on first scene kind of happens that puts out puts that out to the side right but I think at the

[00:28:27] end of the day if you do the work and you have conviction in what you believe I think more often

[00:28:32] than not luck won't play a big part in it I think that's probably the way I would see it yeah.

[00:28:39] Moving on to investors that maybe got very lucky if they were able to hold on to hold on

[00:28:49] the whole time this is speaking of luck yeah there's this graphic that's been going around

[00:28:55] on LinkedIn which has been it shows nine companies and their total return since February 2004

[00:29:07] and so that data is from February 2004 to February 2024 so as of you know month from now a month

[00:29:16] ago as a recording so 20 years of performance and it basically shows how ten thousand dollars

[00:29:25] invested in a bunch of stocks evolved over time and it shows a bunch of huge mega winners that you

[00:29:32] made boat loads of money on on just a ten thousand dollar investment and these types of backtest

[00:29:39] performances are not always particularly useful because hindsight is 2020 and

[00:29:48] survivorship bias is a real problem when it comes to backtesting. Survivorship bias

[00:29:56] kind of throws out a lot of the value you can learn from backtesting and so why am I bringing up this

[00:30:06] graphic that's been going viral because I actually looked into the list and I thought that there was

[00:30:12] something more interesting than just looking at the list right off the gate so then the companies are

[00:30:20] Apple which which would be total return so this includes dividends your ten thousand dollar

[00:30:26] investment would have turned into five hundred and twenty seven thousand eight hundred and eighty

[00:30:30] seven dollars over over half a million dollars not going to read out the amounts of all of them

[00:30:36] but in second place then video third place monster beverage intuitive surgical booking holdings netflix

[00:30:44] old dominion amazon and regeneron so many of those companies you probably have heard of or no

[00:30:52] for those who are not familiar with old dominion or or regeneron there's probably the two smaller

[00:30:57] names old dominion is a trucking company it's very similar to a tf i international Brad Jacobs who

[00:31:03] started odfl expi logistics beast absolute beast was a Brad Jacobs that's our old dominion hold on

[00:31:10] let me let me fact check that founder old dominion was a Brad Jacobs I'm not sure yeah I know he did the

[00:31:19] he's a roll up he's a roll up guy now he did expi logistics maybe not old dominion fry land

[00:31:24] anyways trekking company regeneron is a pharmaceutical company that use the description of it

[00:31:30] is a lot of big words that my brain doesn't understand this list though and not if you look at a lot

[00:31:38] of other companies that are just outside of that list you have axon you have dominoes pizza

[00:31:46] this like some names that you'd be very shocked on their huge performance of the last 20 years

[00:31:52] so what can we learn from this what can we learn from the names that are on this list so when

[00:31:57] when you look at this list you have any first thoughts right when you see it among the mega winners

[00:32:03] over the last 20 years i mean to me i just find it a bit dangerous because a lot of beginner investor

[00:32:10] will see this and then they'll try to get these kind of returns and not fully understand and then

[00:32:16] they'll navigate around like penny stocks to try and get the next you know apple because it was

[00:32:23] worth way less back in 2004 i don't know what the price per share was back then i guess split

[00:32:29] adjusted but i think that's the first thing that comes to mind because i know as well as you do

[00:32:34] when i see this i'm like this is just a tiny fraction of the whole investment or stock investing

[00:32:40] story since february of 2024 really good point many of these companies have split many times over

[00:32:48] and that can be quite dangerous because casual beginner investors like

[00:32:57] apple is now you know hundreds of dollars used to be like four cents these companies did not IPO

[00:33:04] as penny stocks they IPOed typically somewhere between ten and fifty bucks back in the day split

[00:33:11] up a million times in the math works out to to four cents a share so first first point of

[00:33:17] being highly misled to you know beginner investors now i agree with you there's not a whole lot

[00:33:23] to learn there and then i thought let's look at apple and video intuitive surgical arguably amazon

[00:33:32] and dominoes pizza as well axon for sure which by the way since the last 22.8 years has returned

[00:33:41] 500 oh sorry 53,000% 792 category 32% since since inception even tesla let's look at those names okay

[00:33:53] they have all combined a hardware and software mode together okay apple for sure

[00:34:04] and video for sure intuitive surgical for sure arguably amazon at least bridging the gap between tech

[00:34:11] and physical axon for sure dominoes pizza connect they were the first like hey what if we just

[00:34:18] digitize pizza tesla for sure with the the tech inside the car what about regenerate

[00:34:25] regenerates these big words that i don't understand so you know like six out of the top 12 names

[00:34:32] right there all share a really common characteristic around bridging a physical product with a

[00:34:42] software product that makes it really really sticky look at the bloomberg terminal that's another

[00:34:48] a classic example there are all of these really enduring products that have owned the gates

[00:34:57] and the software they've oh they've been gatekeepers of the the ecosystem and own that internal

[00:35:04] software i mean look no further than apple like that's the prime example axon's been leading the

[00:35:10] way with their hardware and software together for police forces so that's one lesson that i learned

[00:35:17] from right away and i'm going to be thinking about more and more as i go i even i really like uber

[00:35:24] stock right now the prices run up so much i should have bought it when i told you i really liked it

[00:35:28] before but uh i didn't because i didn't that's another company connecting the physical uh and

[00:35:36] digital it's using software can connect the physical world Airbnb's another example okay so that's

[00:35:42] that's one thing i thought of number two they have all faced intense drawdowns drawdowns that would

[00:35:51] make you feel like these companies would be left for dead multiple times over their story i just

[00:35:56] went on finchat price target i typed in a bunch of the tickers and press drawdown setting

[00:36:03] there they've all been in situations where they lose more than half their value sometimes all

[00:36:07] the same time oh one oh eight march 2000 yeah maybe yeah they didn't quite get half off there but

[00:36:14] they they they faced at least 25 percent drawdowns there many have faced over 80 percent drawdowns

[00:36:22] some of them have faced more than 90 percent drawdowns during that time multiple times including

[00:36:29] booking oldings many of them have looked left for dead a couple of times during that story

[00:36:37] the market has hated them multiple times and it's not just like one blacks one event happened

[00:36:43] like there have been multiple times in their in this 20 year period where a lot of these companies

[00:36:49] didn't look interesting at all and were on massive massive drawdowns and only the investors who got to

[00:36:57] ride that huge wealth wave were the ones that focused on the fundamentals and not the narrative

[00:37:03] look at meta last year look up maybe what's happening with google this year i don't know

[00:37:09] and so it's important to kind of focus on the fundamentals the real structure of these businesses

[00:37:17] you know are they really intact or is the market just selling them off in a major way so

[00:37:22] that's obviously a lot harder when it's happening it's a lot harder to swim against the current

[00:37:27] when it's happening but you have to remind yourself all of these companies that have had huge success

[00:37:34] have had severe intense drawdowns so you have so you know what you're signing up for right like

[00:37:42] it's not the norm for these companies to cagrad a 30 bag like at a 30 bag or

[00:37:50] without any volatility that is not the norm it is exactly the opposite of that and so

[00:37:56] i think it's instructive to just learn from which companies have done well what are some of the

[00:38:00] characteristics are of them and that if you are going to be a long-term investor in individual

[00:38:06] equities or the broader index you're signing up for volatility and you're signing up for extreme

[00:38:13] drawdowns including many of them over 80 percent yeah and i think that's a good point because it's

[00:38:21] you know people will see these graphs and again i kind of come back to newer investors and they're

[00:38:26] like oh wow like if i invested in apple you know i'd be rich by now if i put $10,000 or 20k back then

[00:38:35] and they see that and i think it's really important to remind that remind people that you need to

[00:38:40] understand the business pretty well to be able to hold the company for that long and not panic

[00:38:47] when there's a drawdown because it's much easier said than done if you zoom out 20 years you see

[00:38:52] these returns like oh like it's you know look at this investor it's easy for him or her like they

[00:38:58] invested in that they got great returns just because of that one stock well i'm sure there was

[00:39:03] a lot more people than invested in apple and a few years down the line they just panic and they sold

[00:39:11] it and they didn't hang on to it and have all these amazing returns it's much easier like

[00:39:17] having gone through drawdowns i think we've both been through some significant drawdowns for names

[00:39:22] we hold i think we were pretty good at you know staying the course if we have conviction in it

[00:39:27] for me obviously it's not a company but bitcoin i've seen quite a few drawdowns there

[00:39:32] it's easier said than done i'll just say that like uh sometimes people will see these graphs and

[00:39:37] they just think like oh i just need to do that well make sure you do the the work because when

[00:39:42] it's happening you know fear is a powerful motivator it it is fear is a powerful motivator and fear

[00:39:50] is a powerful storyteller fear is the most powerful emotion a storyteller can kind of use and what

[00:39:58] that really relates to is the stories that people create around companies the stories that are

[00:40:03] crafted around companies direction one way or another and it usually starts with a little bit of

[00:40:12] price sentiment right it usually starts with a little bit of negative price sentiment i mean

[00:40:19] in the last like month i don't have any really particularly hot takes beyond what i've had about

[00:40:24] google which i think that change is bad for every monopoly and i adjusted my portfolio that way

[00:40:31] but in the last two months we have seen everyone say there is cultural rot inside of google

[00:40:38] it is a hell scape woke rotting company sundar needs to be replaced immediately

[00:40:46] with a fire every engineer that's out there right size the cost structure stop innovating this

[00:40:52] company sucks too sundar is gonna pull off a deal with apple for seary he's a genius this company's

[00:41:00] amazing they're gonna win a i like literally in a month and a half i've seen that unfold on

[00:41:09] most public forums a lot of professional discussions everywhere you look man like podcasts so

[00:41:17] the narrative to be driven by i've seen it and i've heard it yeah yes so the narrative can be

[00:41:23] twisted and spun very quickly here's a little hot hot take okay

[00:41:28] company culture doesn't change two months company culture takes a long long time and i actually

[00:41:35] do think that these big tech companies do need a shake up and that just because the stock rally

[00:41:41] a little bit doesn't mean that they've fixed their issues that's that's the story both on the upside

[00:41:46] and the downside the price can drive no i i think yeah i think that's definitely fair point i don't

[00:41:52] have much to say about that because i agree i mean it's uh yeah the market can be people

[00:41:58] can panic based on headlines people can be really short term focus obviously like uh you know

[00:42:04] i think there's at least questions to be asked if you're talking about alphabet and google because

[00:42:08] i remember when chat gpt came out people were panicking that google search would just you know

[00:42:15] go away and google would be a shell of itself and obviously search is still there will it happen

[00:42:21] eventually maybe maybe not who knows but one thing that was happening at the time and i think it's

[00:42:28] shifted a little bit is people were like oh well wait till google comes out with their AI tools

[00:42:34] because they've been working on that and i think now the perception is kind of not sure right they're

[00:42:41] not sure really where google is that because there's been a few uh a few events that uh they've

[00:42:48] high profile events where they didn't show as well as people expected but i think it's it's good

[00:42:53] to just take a step back and you know maybe if you have a position just take a step back wait till

[00:43:01] things settle down and then make a decision whether you want to continue uh being an investor in the

[00:43:05] business and if you want to invest in the business maybe it's just good to take a step back less

[00:43:10] this does settle a little bit in the next uh you know few quarters see how things progress because

[00:43:16] this space you know as well as probably anyone it moves very quickly so in six months you can get a

[00:43:23] whole lot of information on where things are going i find it mind blowing by the way i'm long google

[00:43:31] it's like three percent position so with that context in mind i am mind blown how that organization

[00:43:39] could have released a product that was so riddled with trying to be very careful when it comes to

[00:43:50] woke identity politics yet the same team will launch a completely faked completely false

[00:44:03] Gemini computer vision demo where they showed like i remember that one you know the one yeah

[00:44:09] it was completely faked yeah i think that's a one where they like basically

[00:44:14] text to image but they basically was in the AI doing it it's damn that kind of made sure it did it

[00:44:21] that way type of deal right yeah yeah they they shopped a video pretty well to make it look like it was

[00:44:27] you know very impressive and i think that the demo that they're that they did

[00:44:34] i think that their tech will get there soon but the fact that they were so behind

[00:44:40] that they had to release a fake video promoting it and then apologize on it it's just like

[00:44:48] what are you guys doing man like that's these are the same people who are so careful

[00:44:54] to release anything that says anything racist on their AI yet they will just fake a video like

[00:45:03] same people i don't understand how that character type exists i think it's probably i mean it's hard

[00:45:10] to say that it argues not a culture thing but at the same time it's funny because they

[00:45:16] were taking their time it looked like google i mean everything i was hearing i think you as well

[00:45:21] like prior to 2022 or prior to november 22 is like all google's really like ahead of every one

[00:45:28] or just making sure everything is good they want to be sure that everything is like tip top you know

[00:45:36] perfectly not perfect all but all but none everything is well done before they release it and then

[00:45:42] open a i came out with chat gpt and it's almost like they panicked and then it was like okay

[00:45:47] screw this we're just really saying products and not you know not doing the proper testing like

[00:45:53] i just don't understand why they couldn't find a happy middle maybe i think what's pressure

[00:45:59] investor pressure yeah but at the same time i mean i think they are probably seeing now that

[00:46:04] you know potential clients would use this technology they'd rather wait a little bit and get

[00:46:10] a product that's actually good then you know these botched presentation or botched products like

[00:46:19] i don't know about you but i'd rather wait a little longer and you know have a product that's

[00:46:25] amazing than you know trying something in it's completely crap and it just doesn't fit the bill

[00:46:31] i don't know to me there's definitely a reputation thing for google right now where they can i don't

[00:46:38] think they can mess up again on this day i have to make sure they get a ride going forward because

[00:46:43] after a couple times or two three times of messing it up i don't think people will give them that

[00:46:47] much leeway going for yep agreed thanks for listening to the pod folks we really appreciate

[00:46:55] you tuning in we are here every monday and thursday has the show been going on i've been out of

[00:47:03] the loop the show has been going on yeah we had had a guest on monday last monday financial planner

[00:47:12] i think the feedback was really good especially the timing was quite good with that cvc investigation

[00:47:18] on big banks just pushing shilling products on consumers that are high fees and booze bank profits

[00:47:27] so it was a good timing to see what i just guess that we actually talked a little bit about it but

[00:47:33] we had recorded like a my three four weeks before so it was kind of funny that we had

[00:47:38] touched on the subject of high fees and these like advisors and air quotes at banks that are putting

[00:47:45] people in two percent two point five percent mutual funds that are performing poorly so no it was

[00:47:51] really good interview good feedback that had so far too i would say we should pencil in for next

[00:47:58] episode discussing that you and i were texting back and forth just like canadians who want to start

[00:48:05] investing the worst thing they can do is walk into large game bank and say hey take my money

[00:48:12] yeah probably the worst thing they can do i mean i can't i can't think of that many worse ideas

[00:48:18] and it's too bad because people end up going there trusting their banks right like they think they

[00:48:23] they well like i think most people when they go to a bank and they want to talk about investing

[00:48:28] and stuff like that i think they go in with the expectation that sure the bank will make some money

[00:48:33] like they'll get a fee that's fine they're providing a service but not with the expectation that

[00:48:38] the bank will try to essentially screw them over that's basically what they're doing yeah right

[00:48:45] well that does it for this episode folks so much to discuss we'll have to be yeah

[00:48:53] i'm here monday's dan kent is discussing earnings with simon every Thursday you can support the

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[00:49:26] real estate investor podcast there they're probably over 150 episodes at this point now i have to

[00:49:33] check i think so yeah they've been cooking it i just listened to an episode this morning so was

[00:49:39] them going over some recent surveys about the economic prospect for Canadians spoiler learned it's

[00:49:45] not good it's pretty good how grim was that i can just picture dan yeah being pretty grim about it

[00:49:52] the barren chief then yeah dan foge the barren chief so if you're into that real estate wise and

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