How Many Stocks is Too Many?

[00:00:00] 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. The Canadian Investor podcast. Welcome into the show.

[00:00:19] My name is Braden Dennis as always joined by the exemplary, Mr. Simon Belanger. Good sir. Today on the show, we're going to talk about a listener question about how many holdings to put in the portfolio.

[00:00:33] I'm going to talk about the business of LinkedIn, which I think is quite fascinating. And then you're going to talk about the stock to flow ratio and then maybe a little treat at the end if we have time. How are you doing dude?

[00:00:49] I'm so glad that it's truly feeling like summer these days. Really? Really? Because of the weather or the Bank of Canada cutting rates, which one is it? That's the strategy right? Yeah exactly. Destroy the economy, cut rates, keep Canadian homeowners happy.

[00:01:11] As long as mortgages are intact, Canada's retirement thesis just comes right into the fold. That's how I feel about this country. Yeah. So Braden is just referring to an interview that the Prime Minister I think did about

[00:01:31] like, you know, he said the quiet part out loud that a lot of Canadians, their retirement is, their wealth is in their home right? And let's not kid ourselves, it's true. Yeah, he's not wrong. I think most people are just surprised that he said it out loud.

[00:01:50] You know, I think the 25 basis point is probably more psychological and Dan and I will kind of elaborate and we'll talk about the whole press conference on Thursday's episode. But when you know, I encourage people just to do the math between, you know, I'm

[00:02:04] sure you know this Braden as a business owner, like 25 basis point is not going to be the deciding factor whether you take on the loan to grow your business or not right? It's not going to be that factor.

[00:02:17] And for a lot of people, it's going to be the difference between buying a home or not. So I think it's more psychological. We'll see where things lead down the line. But it was, I mean, Twitter was blowing up when the news came out and the Canadian

[00:02:30] dollar kind of tanked on the news as well. I guess people are just reacting to it directionally more than the actual nominal amount. Long time waiting. We have a question from Brent. I'll read it and then you can take it away here.

[00:02:46] But basically, what thought process would we use if we had too many holdings and we wanted to get rid of them? Dude, this is a really great question. I think it's something that you and I think about, question that every

[00:02:58] investor thinks about. It's the question that portfolio professional portfolio managers think about. So take it away. Yeah, yeah, exactly. And I think like you said, I think it's a great question. Of course, just to preface this, this is not financial advice.

[00:03:12] This is what I would do if I were in this situation and kind of what I did, because I have been we've talked about it on the podcast. I have reduced the number of individual stock holdings that I have.

[00:03:23] And I'll try to answer this a bit more from a stock perspective, even though I own a variety of assets in my portfolio. So the first thing for me is just I need to establish what is the optimal number of stocks in my portfolio.

[00:03:37] So that is something that's very personal. Obviously, I think there are some general rule of thumbs that I know you'll agree with, Brayden, when you're thinking about, you know, if you have 100 individual stocks, you probably have too many individual holdings in

[00:03:52] your portfolio and may be worthwhile to maybe think about just buying an index fund at that point. Yeah, 100 is unbelievably unwieldy. And I'll talk a bit later about what I think is unwieldy for me. This is just such a personal thing, like what people feel comfortable with.

[00:04:13] You'll see investors that say I'm sufficiently diversified with three companies, they'll say I'm sufficiently diversified with 20. Some say 30. I personally think for individual investors who are not doing this full time, as soon as you get higher and higher, there becomes very little

[00:04:35] rationale for doing that versus owning a very low cost, broad based index fund. That's been my position on this for a long, long time and I don't see that changing. No, and I think that's a fair statement.

[00:04:52] I agree with that in terms of, look, at the end of the day, you just have to be able to keep up with the number of companies you have in your stock portfolio. The reality is we have a finite amount of time, so we don't

[00:05:04] have 48 hours every single day to do that. You might have family, kids, even if you don't, you have a regular job, like you just said. So you have to be honest with yourself and just make sure you're able to stay on top of those companies.

[00:05:18] And based on that, how many holdings do you think is appropriate for you? For me, the answer, the sweet spot is definitely around 10 to 15. But again, I use a hybrid approach. I do have some index fund and then I'll pick some individual companies that

[00:05:34] I think will outperform, but also allow me to diversify for the most part outside of the index fund because we've talked about it recently on episodes. Their market cap weighted and they are extremely weighted to the top, especially right now, considered to history if we look back.

[00:05:54] So we're definitely at one of those peak concentration when it comes to the index. So that's how I view it. But again, for someone else, it might be higher for someone else. It might be, you know, maybe they just want five holdings and the rest in

[00:06:07] index fund and use a hybrid strategy like that. So it's really a case by case basis. And, you know, like you said, someone could also I'm sure there's lots of people that just home Berkshire and that's it because Berkshire, it's quite diversified in itself.

[00:06:23] So that's another example, right? Not all companies are created equal. So you have to to look at that from that perspective, too. Yeah, that's a great point. Diversification is not created equal. Someone who owns Berkshire Hathaway, 100 percent of their portfolio, is in my view, very sufficiently diversified,

[00:06:44] more so than if they own 10 individual stocks that make like mid cap, like a bunch of mid cap software companies like Berkshire Hathaway in itself is very diversified company. I don't know if you saw this, but the NYSE had some glitch

[00:07:01] where it lost like 99.9 percent of its value last week or earlier this week, actually. And that was the A1, right? That's the one that's trading at hundreds of thousands of dollars that was worth like a couple hundred bucks or something like that.

[00:07:15] Because I think it might have been the A shares. So it was a glitch. It was a glitch on FinChat, too, because it's not a data provider. It's the actual exchange. Yeah, yeah. So like even had Bloomberg have like some automated up,

[00:07:31] like automated news article being like Berkshire Hathaway, largest drop in its stock in history. Like they just pump that AI article out. And it's just it's just a glitch. No, and yeah. And that's just it's just important to create that nuance here.

[00:07:50] And then the second thing I'll do is once that's established, I'll go by allocation size and look at the smallest allocations. First, the reason I'm saying that is, you know, I've been guilty of that. But if I have something that's less than point five percent of my portfolio,

[00:08:06] I'll probably be selling it just based on that, because unless I plan on adding in the future, why is it such a small portion for my portfolio? And the reasoning, too, is that when it gets so small, it's just that's just personal to me.

[00:08:21] I just find that I kind of lose track of it and I don't keep up as well just because it's not as significant part of my portfolio. So that's something I've noticed and something I've been trying to rectify

[00:08:33] for a joint TCI listeners don't see that I have less and less. I had a few and now I've actually either sold them or added to them. And that's something I'm working on. That was a big project for me last year was to.

[00:08:45] I think the key distinction was in the last part of your sentence there was if it's a small position, like half a percent, like for me, like anything less than a percent that I don't have intention to add to with fresh capital in the short to medium term.

[00:09:00] To me, that's the tester because I have four positions that are all like one and a half percent, including a new one. I finally bought Uber, which you can. Yeah, I saw that. Yeah. The newest joint TCI.com. I finally did it.

[00:09:16] I've been talking about potentially owning the company for a long time on the podcast now, but I have roughly four names that are in that like less than one and a half percent, which is. Which is fine, but I like all of them.

[00:09:30] Like I can think three of them right now. I'm probably going to add capital to like next month. So that to me, that's the really important distinction. If I've had something sitting there for a long time with no intention of fresh capital to go into it,

[00:09:45] I don't have a really clear thesis for it moving forward. That's when it's on the shopping block. Yeah, definitely. And actually, side note on Uber, I used Uber like not Uber Eats. We use it pretty not pretty regularly, but once in a couple of weeks,

[00:10:00] we just find it's better value than going to the restaurant and with the toddler, you know, the logistics of that is not always easy. But I forgot how much the prices will fluctuate depending on the time of the day, because I used it like at the tail end

[00:10:16] of rush hour, but it was still rush hour. Was like 25 bucks to go to where I was going. And then coming back the same route, just the other way around was outside of rush hour and it was a third of the price.

[00:10:29] So I forgot for the ride share for Uber Eats for no Uber. Yeah, for regular Uber. Just regular. OK. I hadn't used it in like probably a couple of years. So that's why I kind of forgot about it. Yeah. Yeah, the pricing is so dynamic.

[00:10:43] I feel like it used to be even worse, like way back when I started using it. The there'd be like that surge pricing and you'd wake up and you're like, whoa. Came home from the bar last night, I spent 80 dollars on an Uber that brought me three blocks.

[00:10:57] Like, what is this? It's like, oh, there's a limited amount of Uber at 2 a.m. or two thirty, and all of a sudden a lot of people want to use it. Yeah. You know, what's that all about? Huh? Yeah.

[00:11:09] And the third here is then I'll really start reviewing all the other names and look back at my original investment thesis. If the investment thesis has changed significantly and I've lost conviction, then I'll go ahead and sell that name no matter how large a position is.

[00:11:25] That's unlikely to happen, though. I will mention that because for the main reason I just said about, you know, having a position that was too small when the positions are proper size or large or definitely the larger positions,

[00:11:38] I guess it's the extra incentive right that I have personally. But I think as humans we probably have is, you know, we tend to keep a very close eye on those larger positions because we have definitely more skin in the game and the incentive is there as well.

[00:11:52] Yeah. No, this is this is something that is close to home for both of us. There's a big project for me last year to really consolidate and be concentrated because that's where I'm comfortable. I'm actually more comfortable, more concentrated. A lot of investors are the opposite.

[00:12:15] And I think that that's totally fine. Like, there's no one way to win here when it comes to portfolio management. For me and for you increasingly, if I understand what you're saying correctly, we feel really comfortable owning large allocations to companies we have a lot of conviction in.

[00:12:33] I mean, the portfolio that Charlie Munger in his nearly 100 years, nearly a centenarian was Costco, Berkshire and his apartment building complex. So like that's he's like, what do you mean? I'm Costco is the best enterprise ever. Why would I be not sufficiently diversified?

[00:12:55] Berkshire is the greatest company ever. Why would I not be sufficiently diversified? So that's the kind of thinking that I think about, right? When if you meet some like business magnet and they're like, yeah, I own four companies and you're like, wow, that's crazy.

[00:13:09] Like so diversified for businesses like that's a that's really cool. And they're all, you know, big or whatever. That's the approach that I take to owning minority equity investments in stocks. Like that's the mindset I take towards owning individual equities.

[00:13:31] And I think that's really instructive in terms of owning long term, enduring enterprises that you want to be a shareholder in for as long as you can. Yeah, it's fascinating the mindset that people will have, right? They'll hear about like a business owner has a successful business, maybe

[00:13:47] like it's a small medium business, but you know, they're doing quite well. Yet all of their wealth is in that business and people will not bat an eye or the same thing, right? Someone will have a good paying job. Nothing crazy, but good job.

[00:14:00] They bought their home 10, 15 years ago. They have a substantial amount of equity in their home. But that's essentially like all of their wealth is the equity in their home. And that's completely fine. But then you have someone that has like five to ten stocks

[00:14:15] with maybe some being in the 10, 15, 20 percent range. And that's like super concentrated. It's just I do find I see that a lot where people don't bat an eye. And then it's about like, you know, your stock portfolio and say, oh, my God, you're so concentrated, which, you know,

[00:14:31] I'm not saying is right or wrong and just saying it's kind of funny the perception that people will have. It's the same for me. I mean, between Constellation, Luman Group, Topicus, that's like like almost 1100 software companies at three, three individual stocks. Like that's very, very diversified.

[00:14:53] Maybe not sectorial, but number of businesses wise, it certainly is. So no, I like that. I think the takeaway here is what you said at the beginning. Diversification is not created equal. I think that's a really powerful statement. So you ready for the business of LinkedIn?

[00:15:11] I got a I got a segment here. Yeah, the most annoying social network for me, but sure. Yeah. But it's a good one for making money. It is certainly cringe at times. Some of the stuff you see on there. I've noticed that there's also like

[00:15:30] a new trend of people posting on LinkedIn of just straight up comedy, like just being funny because they're counter positioning against like how serious the platform is. Oh, yeah. Yeah. And it's working really well. And I think that it's actually a really good idea

[00:15:44] if I was to be a content creator. So the business of LinkedIn, I got a fairly long segment here, mediumly long segment here. So jump in wherever. But I'm going to be cooking here. So founded in 2002, launched in 2003. Basically, as the the bubbles crashing,

[00:16:07] LinkedIn was born and through that time, as of today, and you know, it's reached the status well before this recording. But it has become the de facto social network for professionals for your professional forward facing resume, your public resume. And as part of that network effect

[00:16:32] with now one billion users across 200 countries, it has built simply a remarkable business and arguably one of the widest platforms that exist in my view. Today, the business is really impressive. They've they've done this thing called LinkedIn sales navigator. I'm a subscriber to it.

[00:16:56] My sales guys are subscribers to it. There's other subscriptions like LinkedIn premium you know, if you go on someone's profile and you see the the golden LinkedIn badge on the top right, that's LinkedIn premium. The advertising business, of course, you know, on a long enough time

[00:17:12] horizon, every social network is an advertising business. Learning and training. They I don't know how big that is, but that's also one of the things that they offer. And then job postings. So HR recruitment. Basically, as the tech bubble was crashing, Eric Lee and Reid Hoffman

[00:17:33] started this company, and Eric Lee was already successful in the kind of early Internet days. And Reid Hoffman was part of the very infamous PayPal mafia. Simone, you're familiar. I've talked about the PayPal mafia on the podcast before. But for the listeners, the PayPal mafia refers to

[00:17:53] the people and business people that were early, early days in PayPal. And the list is mind blowing. Peter Thiel, he's he's referred to as like the dawn of the PayPal mafia. He's a mega, mega billionaire. Zero to one is a fantastic book.

[00:18:14] If you're thinking about being an entrepreneur or starting a business, zero to one by Peter Thiel is probably one of the best I can think of. Max Levchin, he was, you know, this initial CTO, very famous entrepreneur. Elon Musk, I don't know if you've heard of him.

[00:18:30] He's a little bit. Yeah, he is part of that. David Sacks, who ended up starting Yammer that sold to Microsoft. He's now on that big podcast. Yeah, Steve Chen and Jared Jowd-Kerim. Those guys started YouTube. And Reid Hoffman, of course, who started LinkedIn.

[00:18:50] Keith Raboi, the list goes on and on and on. Very famous people went on to start famous venture capital firms in the valley, other very successful startups. So roundabout way to saying this was an elite group of people. By 2004, LinkedIn had already reached one million users.

[00:19:09] So that was rapid scale go to market because they'd launched it in 2003. The company had grew and grew and grew until 2011. They went public under the ticker LNKD. At this point, the company was doing about 121 million in revenue. And this was largely advertising.

[00:19:32] In 2016, I went into their filings because on Finchel we have all the like D listed companies in there. Go to their filings and their last public quarter. They did nine hundred and sixty million dollars in revenue. So just shy of one billion dollars in revenue in the quarter.

[00:19:56] And most of it was advertising or most of it was hiring related, my bad. So that's that's really where this started to kick in post IPO. Hiring related was 60 percent, 20 percent was advertising and 20 percent was subscriptions.

[00:20:11] So if you have a job posting and you want to boost it or you want to like don't hit their max cap, for instance, I have two job postings out right now. And if I don't boost them or like pay, they basically just say,

[00:20:24] oh, sorry, you've hit your limit. Like too many people have seen this. You put a budget on this job. Yeah. And it's kind of like similar to the Google ads platform where you have like a bidding system to put it to the top.

[00:20:37] But you need to have some amount of money going through it or else it'll just cut you off. And that's really critical because for me, I post it to like my careers page. Like, I don't want them applying on LinkedIn because it's too easy. There's not enough friction.

[00:20:54] So you get a lot of junkie applications. So I want them to go through my actual application. But I want them to see it through LinkedIn. All the clicks, since I have it on that setting, all the clicks count as a job application.

[00:21:06] So they cut me off like right away if I don't pay. So that's how they have this business absolutely dialed in. So it's a pretty amazing network effect right in there. Yeah, one thing I was going to say, like more a side note,

[00:21:20] but I like what you mentioned, like, you know, getting people to apply on your page. And for those who are looking to get a new job or something like that, I think it's and I have some experience in HR and even in staffing when I was younger.

[00:21:33] And I think it's important when you apply to a job, especially one that you really want, make sure you tweak the resume. Like, obviously, you still want to be truthful and not lie on your resume. But make sure you highlight things that are applicable to that job.

[00:21:48] Because if you use something like LinkedIn and you just have kind of a standard resume for everything, it just doesn't show as well. And hiring managers or a staffing recruit or whatever it is, they will notice these things that you actually took the time

[00:22:03] and it is more targeted to the actual job you're applying for. 100 million percent. I couldn't agree more. LinkedIn easy apply is too easy. That means that you're there's just too much competition. And for me, as someone looking through them, like I've just made myself a huge job.

[00:22:24] Like I'm trying to hire quickly and efficiently. I don't want to sift through 900 applicants who just pressed one single button. Like, there's no intention there. There's no friction there. So, yeah. So that's why I used to always wonder why companies like

[00:22:40] why are you making me take my resume and spit it out again on this application? Like, can't you just look at my resume? Well, it's like no, because that PDF is really hard to parse. There's no kind of standard structure.

[00:22:55] So the people hiring, they need to do this efficiently and quickly. So, yes, if you are looking for a job, I would say quality over quantity in terms of spraying and praying. You've got to apply to a lot of jobs, of course, but

[00:23:10] just doing low effort applications out into the wild, you just won't stand out. So, yeah, good call, because you and I have looked at a lot of resumes. Oh, yeah. And don't five pages make it shorter? You need to make it shorter.

[00:23:24] Yeah, like one, two pages max, if not, like two is great. Yeah, more than that. You will like literally you're losing out because it's too long. They don't have the time to look at it. So that was their last public quarter

[00:23:39] as a separate entity ticker LK or sorry, ticker LNKD for LinkedIn doing about a billion in revenue per quarter. So, yeah, roughly four billion dollars a year. Top line revenue business. It was purchased by Microsoft at the end of 2016

[00:24:01] and the deal closed for twenty six point two billion. And the shares on the open market. I remember that day actually very clearly because they shot up dramatically because the the public market had the market cap on the business at 17 billion.

[00:24:19] So this buyout was obviously at a premium, which is standard for any good company that is sought after by any acquirer, especially like a Microsoft who can pay up. And so today, Microsoft doesn't break out the different segments of LinkedIn, but they do break out

[00:24:38] the segment of LinkedIn itself within Microsoft. In my view, this was an incredibly good acquisition for Microsoft. It's grown at double digits compound annual growth rate. It's now doing over four billion in sales per quarter. So this is a 16 billion run rate business.

[00:24:58] Advertising is obviously cyclical, but not the rest of the business. The subscription. It looks like a software revenue chart because the subscription businesses are crushing it. When purchased in 2016, they had basically just launched what I think is one of the crown jewel assets in the world,

[00:25:20] which is LinkedIn sales navigator. If you're listening and you're in sales, you probably have a subscription to LinkedIn sales navigator or your company's paying for LinkedIn sales navigator. This has become a very core tool for the modern salesperson. I have account executives working for me.

[00:25:41] And the first thing they say is, hey, can you sling me that corporate credit card? I got to buy me some sales navigator. And cold emails, very crowded. It's hard to get attention. Where LinkedIn is a bit better,

[00:25:54] is they do set limits to avoid spam, which I'm very grateful for. But it's not nearly as crowded as an email inbox. The hit rate is way higher for salespeople. So this has been an absolute beast of a product for LinkedIn.

[00:26:09] And it's basically impossible to compete with because of the network effect. LinkedIn is a core example of a business that has built an exceptional network effect and flywheel, meaning the more people who use LinkedIn, the better the product is, makes more people use it.

[00:26:26] And then you have this positive feedback loop until you have over a billion users across the world. Now, it's job business, which I talked about a little bit before, how it's definitely dinging my wallet at the moment. The job postings require you to do more and more spending.

[00:26:43] That's the that's the name of the game here. More and more spending. It's advertising network and subscriptions for Sales Nav and LinkedIn Premium are exceptional. You have the business now that's going to be doing over 20 billion dollars in revenue in the very near term with really good margins.

[00:27:00] It was bought for just a little over 20 million by my sorry, 20 billion by Microsoft. And despite only being seven percent of Microsoft's total revenue today, I think LinkedIn is a fairly substantial piece of the investment thesis with Microsoft. And I'm a Microsoft shareholder.

[00:27:20] I think that this is one of the most durable assets you can find. Of course, the story right now for Microsoft is all about cloud, all about AI and for good reason. I mean, the Azure story is very important, but I suspect LinkedIn

[00:27:36] could be one of the best Internet assets. And potentially the most enduring compared to all of the social networks due to the nature of it being your professional online resume. There's no appetite for LinkedIn 2.0 right now. There's LinkedIn there's sorry, there's appetite for TikTok 2.0.

[00:27:56] But there's really no appetite for LinkedIn 2.0. Looking forward, growth is going to be slower than it is at that high 20, high 30 percent that they achieved post acquisition. You've seen that number come down to like low double digits, high single digits, but there's still so much they can do.

[00:28:16] Once you build that active network with over a billion users, essentially no competition. Optionality becomes the name of the game. So that is the business of LinkedIn. I was trying to think to myself, what would this be worth

[00:28:33] if it was still public and those were its current financials? You'd be you'd be pushing over 100 billion for sure. I think I think without a doubt, actually. Yeah, probably. I mean, how prof. Trying to see what meta multiples are right now.

[00:28:51] Metas trading at almost nine times sales on enterprise value. And this thing's doing 16 billion. Yeah, probably 150 160 billion, I would say. Yeah, in terms of very durable. Yeah. Yeah. And less cyclical than traditional advertising because of the subscription business.

[00:29:13] Like, yeah, I think this is at least 150 billion dollar asset. No, no, I think I mean, obviously it was a great purchase by Microsoft and it's one of the more durable networks. So that's for sure. And that's what we're seeing.

[00:29:27] Right. I think we're starting to see these social because it is a social media platform is just catered more towards professionals. But I think we're seeing a bit of a consolidation with the top ones now.

[00:29:39] I think they're they're going to be hard to disrupt, whether you have ex Twitter, you have Facebook, I think Facebook with especially their marketplace. I know that's the one I use quite a bit. And then, like, obviously, they own Instagram.

[00:29:52] That's strong, too. You have YouTube and then you have LinkedIn. Am I missing any? I think those are the there are some smaller ones. Obviously, Tiktok. This one is a bit like limbo because of what's happening in the US. But then there's snap.

[00:30:06] But the other ones, I feel like are more kind of an afterthought a little bit. They have kind of more their niche user base. But I think those are the big ones for me. Yeah, I think you've mentioned the ones that are reaching billions of people.

[00:30:19] Yeah. Right. Like that's that's such a scarce asset to have something reaching a good percentage of the population on Earth. I met a just reported there daily active people is three point two four billion daily active. That is absurd.

[00:30:43] So you can kind of start to map out there that they're going to have roughly four billion active people daily on those platforms in the fairly near term. We'll see. I mean, Instagram and WhatsApp are such scarce assets. Of course, Facebook Blue is such a scarce asset.

[00:31:06] But in my view, LinkedIn is the true golden goose in terms of being so scarce and the content on there kind of sucks. Like that's the that's almost the investment thesis is, OK, no one's going to be able to disrupt it. And the content kind of sucks.

[00:31:25] There's no reason to show up to LinkedIn every day, unless you're a recruiter or a salesperson. There's no reason for the average professional working in engineering to show up to LinkedIn every day right now, as of today. And I think that that's kind of their opportunity.

[00:31:43] Yeah. And I think the case in point, too, in terms of how sticky these platforms can be as a whole, the big ones is what's going on with meta threads? I feel like that is kind of case in point, right? Like it's I don't know.

[00:31:58] I don't know anyone who uses that. So I don't have I don't have it, but I saw the platform yesterday. Funny you say that. I was a school through it. Yeah. And I was like, oh, can I see your phone?

[00:32:10] I want to see what this is all about. Threads was in my 30 second sample size. It was like all brands that they were showing, like all the different brands threads, like Ryanair and like all these like consumer facing brands were just making memes and stuff

[00:32:32] and posting them on threads. I didn't it seemed like it was mostly ads in my view, but I'm not surprised. Have you seen Mark Zuckerberg lately? I'm not surprised. Yeah. Well, I mean, and something when they report,

[00:32:45] I'll be interested to see what they say about it and something else zone in. But it feels like it's kind of falling off and people thinking it would just disrupt X. Right. I don't think that's happening. So I can't believe I'm saying X either.

[00:32:58] Twitter, I still should say Twitter. But no, I think it was a great thread and definitely interesting. Well, I just controlled F on their Q1 FinChat investor relations page on the control F. I control left threads and it was mentioned three times

[00:33:18] on the earnings call and two of them were in the same sentence. So it was mentioned twice. Threads is going well to who's talking here. Is this Mark? Who is talking here? Holy smokes, it's a long passage. Threads is going well to there are now over 150 monthly actives

[00:33:35] and it continues to generally be on the trajectory that I hope to see. And of course, my daughters would want me to mention that Taylor Swift is now on threads, which was a big deal in my house. OK. Her team downloaded threads.

[00:33:52] Yeah, I think the lack of detail speaks volume. I think it's just that's right there, right? It's just saying like kind of general things. Whenever you see a company just say general things, not too specific. It's because they probably don't want to be super specific.

[00:34:07] Yeah, like how's it going, Simone? Taylor Swift, a.k.a her PR team, joined threads. So that's going great. Yeah, exactly. No, I think that was great. So we'll finish off. I don't think I'll do my last segment, just this one that I wanted to do

[00:34:24] on that stock to flow ratio, something I've you know, I've looked into for quite a while now, but it is quite useful, especially for those that are interested in investing in commodities. That's really where it becomes very useful and Bitcoin as well.

[00:34:39] The stock to flow ratio, the goal when using it is comparing the existing supply for commodity with the annual production of that commodity. So the calculation is pretty simple. You just need to get the actual numbers. So you take the total existing supply of the commodity

[00:34:55] and you divide it by the annual production. The higher the number, the more scarce the commodity will be because obviously there is a bigger supply already available and not that much being added to it every year. And essentially, the number is meant to represent the number of years

[00:35:11] that you'll need to get to the current stock by the new supply that goes into production each year. For example, gold and Bitcoin will have high stock to flow ratios because the existing supply is much greater than the new production each year. For gold, that would be approximately 60.

[00:35:29] But that can, of course, vary from year to year, depending on how much new gold is produced. So in other words, it could mean that it would take approximately 60 years at the current production rate to get the current stock of gold.

[00:35:44] And gold specifically, and I've mentioned that before, the new production of gold is surprisingly very stable when you look at history. There's kind of different factors for that, but typically will increase between one and two percent. And people will say, well, oh, like, well, with new technology,

[00:36:02] I like wouldn't that be a risk that it increases? Well, the issue is that the easiest gold to have been mined has already been mined because it was easily accessible, right? In the past, when technology wasn't as good. And now as technology progresses,

[00:36:19] the technology is getting better, but we're trying to get gold that's harder to access. So that's why it kind of it's almost a nature's way of making it a pretty scarce asset in itself, because it's pretty difficult to to get some new supply.

[00:36:34] And for Bitcoin, it's actually very easy to calculate. You can get these number on the Internet, very easily. So I'll just show you know, because it's an easy example. There is currently about one hundred and thirty three blocks

[00:36:46] produced per 24 hours, and each block gets a mining reward of three point one to five Bitcoin. So you multiply both, which means you have four hundred and fifteen point six three Bitcoin that are created every 24 hours. And then you take that amount and multiply it by three hundred

[00:37:04] and sixty five days. So you get just a bit shy of one hundred and fifty two thousand Bitcoin per year that is newly produced. And that obviously increased recently with the halving. And you divide that by the current supply of 19 million

[00:37:19] and seven hundred ninety million and seven hundred thousand and change by the amount that essentially was produced each year. And you get a stock to flow ratio of one hundred and thirty. Now, keep in mind, I think this is you.

[00:37:34] You can get into much more detailed calculation because when you factor in in terms of Bitcoin, for example, there's always it's hard to estimate the amount of bitcoins that are actually lost. So think about people that passed away and didn't have like,

[00:37:51] you know, a proper plan set up to give that to their family members or their inheritance, people that lost their keys and things like that. So it's hard to say the exact estimate of Bitcoin that's been lost. Same thing for gold.

[00:38:04] There's a certain amount that's been lost, but something to keep in mind if you're interested in looking into these ratios, you there are a certain limitation to the stock to flow ratio. And one of the other limitation when you're looking at commodities,

[00:38:19] for example, so traditional commodities like gold, silver, any of, you know, pick your commodity here. One of the biggest issues is it does not incorporate usage. So for commodity, the usage is a big part of the annual production, at least for certain commodities.

[00:38:36] And the perfect example here is silver. So approximately 50 percent of silver annuals production is used for industrial purposes, which is a much higher rate than gold. Gold, I think the figures I've seen is around 10 percent. And in order to take that into account, you can actually calculate

[00:38:54] the net stock to flow ratio. So you get this by taking the existing supply of silver divided by the annual production minus the usage. So that'll give you a better idea, especially if it's a commodity that has predominantly not really a store value, but predominantly industrial uses.

[00:39:12] You can use that to calculate the stock to flow ratio. And like I said, it's a good indicator of the scarcity of the actual commodity. And I would think if you want to start investing in commodities, even companies that produce those commodities,

[00:39:27] I would encourage people to get familiar with this ratio because it is something, you know, just to understand. It should be part, in my opinion, of your investment thesis. Three comments slash questions. One, stock to flow ratio is a metric that just makes you instantly sound smart.

[00:39:46] Just it just is what it is. It's not that complicated, though. No, it's not. It's not. It just it just sounds cool. Two. So with this silver example, that's to net out the stock to flow ratio if it has uses beyond being a shiny object.

[00:40:07] Yeah, beyond beyond basically being a store value or having a strong monetary premium in terms of commodity. Yeah. Got it. OK, I guess I have four then because three is in this bitcoin or gold example. That number is going down over time, as I understand it, because supply.

[00:40:29] Yeah. So the number for Bitcoin will actually the stock to flow ratio will go up. So you'll be like right now with the halving essentially went from like it almost doubled, right? Because the halving cut the new supply of Bitcoin in half.

[00:40:42] So it went from in the 60s to in the 130s because then the amount of new Bitcoin actually was cut in half. So the denominator was actually. Oh, I had the denominator enumerator flipped around here. OK, OK, I'm with you. I'm with you.

[00:40:58] So that number is going to go up over time because supply is going down. Exactly. Yeah. For gold, it should stay relatively stable, though, because of that. You know, it only increases by one to two percent every year. Yeah. Yeah.

[00:41:10] And the better economics for gold, the more people mine. Yeah, exactly. The extra incentive. Yeah, that's yeah. OK, I'm with you. So that goes up over time. And then, OK, this is this is interesting. This is, you know, out of out of my world.

[00:41:25] So this is I'm learning something right now. But I think it's you can apply it to pretty much any commodity. That's what's kind of cool about it is you can obviously like if there is a super low stock to flow ratio,

[00:41:36] it means it's something that is produced quite heavily, right? And there's probably a lot of usage as well. But it's going to have a much lower value because the scarcity is much lower. Got it. What's the stock to flow ratio on homes in the greater Greater Toronto area?

[00:41:55] Yeah, that's that's a good one. I'm not sure. I need to know the stock to flow. Yeah, it's probably yeah, the scarcity. I don't know. I would have to ask Dan for that. Yeah. Yeah. Yeah. Last day, we'll ask Dan from the Canadian Real Estate Investor Show.

[00:42:13] We really got to differentiate that we keep saying that. We haven't been differentiating them. Dan, Dan Kent, not the same human being. Both come on the show. No, both great looking guys, but both handsome. Yeah. Yeah. Incredible stuff. So thank you for this is I just learned something.

[00:42:31] It's one of those things where I hear it and I just pretend I know what it is, but I don't I don't actually look at commodities really ever. And so it's good to learn something here on the show. Thank you for listening to the podcast.

[00:42:45] We really appreciate you. We are here Mondays and Thursdays, as always. And that maybe that's a good handoff, actually, is the Canadian Real Estate Investor Show. If you want to know what's going on with rates and the real estate market, there's really no one.

[00:43:03] No two guys better tuned into that world than Dan Foch and Nick Hill from the Canadian Real Estate Investor podcast. They're under our family of podcasts. So it's all in the family. You can find it on your podcast player. If you're not already subscribed, you should do that.

[00:43:20] You can get dialed in on what's happening with rates and the golden goose that is Canadian real estate. We'll see in a few days. Take care. Bye bye. The Canadian Investor podcast should not be construed as investment or financial advice.

[00:43:34] The host and guest featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.