Our Biggest Opportunity Ever?

[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] I'm joined by a special guest, recurring guest on the podcast here, Ryan Henderson. Welcome to the show, man. For those who do not know Ryan Henderson, he leads all the content and growth at FinChat. So if you're not following that Twitter account, you're missing out.

[00:00:39] So you're the man behind all the content we put out. Yeah, a lot of threads. But yes, excited to be on here. I think this is my second time now. So I guess we can call that a recurring guest.

[00:00:52] Yes, sir. And dude, it's... I mean, you have been doing investment research now, kind of like self-starter. You do post a lot of content online. And so then I was just like, hey, do you want to do this for your job? And you've done such a fantastic job.

[00:01:09] But dude, can I start with a story for you here? Do you know Bryson DeShambo? Yeah, I'm familiar with him generally. Okay. So for those who do not, he is a professional golfer, definitely one of the top best golfers

[00:01:29] in the world. He just passed... He's the reigning US Open champion, two-time winner of it now. And he just hits the ball a mile. But for those who are golfers, for those who are not,

[00:01:42] I'll tell you why this story is relevant and how it relates to business. So he was like, I understand. He was by far the most disliked and villain of professional golf

[00:01:56] for a long time, for probably ever since he came on the scene. He was like this nerdy physics guy who was like bringing that kind of element to golf. But he just did it in a really

[00:02:07] unlikeable way. His interviews were snarky. He wore this silly little hat and like the list goes on and on and on of just why he was kind of the villain. And he started beef

[00:02:21] with one of the more famous golfers on the tour. Anyways, that's neither here nor there. He starts a YouTube channel like... I don't know. Let's call it a year ago now. I'm not sure.

[00:02:33] But he just started posting every single week like his rounds of golf and like highlights from playing professional golf, but also like doing funny golf challenges and just like trying to show people who he really is. This man's career 180 in terms of like going from the villain to

[00:02:53] the people's champion in like eight months needs to be studied. It's like the Mark Zuckerberg rebrand. Yeah, exactly. But like some people who are not like in the know on Zuck will still just

[00:03:07] think Zuck is Zuck. But like anyone who's into golf has done this complete 180 on Bryson. Like literally it's amazing to watch from like getting booed at professional golf tournaments to having the biggest crowds following him around since Tiger Woods. And so he just posted

[00:03:26] a YouTube video playing 18 holes of golf with Donald Trump two days ago. It has seven million views already and the point of me bringing this up is Google just released their earnings. YouTube

[00:03:45] is continuing to be a strong point of the business, but I did a segment on the podcast maybe like two months ago about LinkedIn just being like this scarce internet asset that's like impossible to compete with. YouTube is that other big tech scarce asset that's tucked into Google

[00:04:06] LinkedIn being tucked into Microsoft that just feels untouchable and this is where people are going to be telling their story and famous people as well. It's just amazing what this platform has become. Yeah, and it just gets better and better with time. The more people that

[00:04:23] contribute to it, the better the platform becomes and it has become, you know, people talk about building a business online. YouTube really is a platform where it's pretty doable to build an actual business online to build an actual income stream. So yeah, it just becomes more

[00:04:43] and more powerful and that much harder to compete with for like, I couldn't imagine trying to compete with YouTube trying to start up a competing video service. It would be impossible. Yeah, and so I'm just looking here. They just did 8.66 billion in ad revenue. I forget exactly how

[00:05:01] they break it out, but I see here that they have over 100 million YouTube music and YouTube premium paid subscribers too. It seems like they're always kind of in a forever war with

[00:05:12] the ad blocker services. I tend to think that they'll win that war over the long run because they own the browsers and like they own the domain that, you know, they're fighting a war with

[00:05:24] those players like exist on. So I have a feeling they've just been kind of playing it long game with those services, but man, I am just blown away by this platform and I see this like

[00:05:39] Bryson DeShambo story and it's just so obvious that this is how people tell their story online now. Seven million views in the past two days, it's going to keep going higher and higher. And it's not like this is a little viral TikTok clip that people watch for 13 seconds.

[00:06:02] This is like a two hour video. Like it is mega long form with probably amazing retention. It's just it's so cool. Yeah. And the other thing you only think about, you think YouTube, you kind of think short form videos, but long form works on there as well. And

[00:06:19] I think part of that podcasting is moving more and more to YouTube. And I think a lot of the reason for that is the discovery engine with the podcast platform, your player of choice,

[00:06:30] whether it's Spotify or Apple, whatever it is, there's not really, I mean, there's some level of a recommendation algorithm, but you're not really going there for new discovery. You're going there for what you already know. Especially for podcasts. Yeah. I think it's pretty good for

[00:06:44] discovering new music, but I agree. It's not that great for discovering podcasts. No, exactly. You put up like a short form video on YouTube. There's the chance that something goes viral. You put up a podcast. You have a pretty good idea of how many people

[00:06:58] are going to listen based on however many people listen last time. Yeah. On that same note, you wanted to talk about Google Cloud Spending as that's the hot topic they did just release earnings. What's the story here? Yes, a pretty good quarter all around Google,

[00:07:15] just kind of for context to take everything back. A year ago, everyone thought Google was going to be the lagger in AI. They were getting sort of a discount because of that. The stock was kind

[00:07:29] of selling off because they were behind relative to Microsoft who had just invested tons of money into open AI. There was even this, I think in February of 2023, Satya Nadella goes on this interview. Satya Nadella, the CEO of Microsoft, he says, we want to be the ones. We

[00:07:45] want people to know that Microsoft made Google dance. You just look at the results and there doesn't seem to be much quote unquote dancing going on. Revenues like I said were up for... It's a slow dance. Yeah.

[00:07:59] Stay away to heaven, seven minutes at the end of the dance here. Yeah. The top line has been really strong for Google and a lot of it's still driven by search, which is where Microsoft was kind of trying to make some inroads. Operating margin expanded from

[00:08:14] 29% to 32%. There was really pretty much growth in all the visions. We talked about YouTube there, that YouTube ad revenue grew 13% every year. You got to put some context on that because advertising revenue for YouTube is growing double digits while they are trying to push people

[00:08:33] to an ad-free solution. They're trying to convert them to subscribers where they don't need advertisements anymore and that business is growing. They don't break it out explicitly, but they talk about it on conference calls here and there and they are growing the subscription business while also

[00:08:49] growing the advertising and a lot more of the engagement is coming from shorts where there's a monetization gap. The shorts don't have quite the same advertising rate as the long form videos. As that monetization gap closes, advertising revenue should continue to grow

[00:09:04] probably even faster because basically all this is to say engagement has significantly outpaced monetization for YouTube. Anyway, YouTube seems to be very solid. Google Cloud was kind of the I think story here that most investors were excited about. They crossed $10 billion in quarterly revenue

[00:09:25] for Google Cloud, which encompasses primarily Google Cloud platform but some other services are in there as well. Operating income also crossed $1 billion. I don't know if I've ever seen a business of this size have such a linear path to profitability. They were just literally

[00:09:45] improving their operating margins by 2% a quarter for the last 20 quarters and it's been so gradual. It's like they just picked the profitability they wanted and they've done a really, really good job scaling this business. The last thing I'd mention here is the stock, even after beating

[00:10:03] expectations across the board, this happens every time with Google. They report great numbers, the conference call comes and then they talk about how much they're going to invest in these new initiatives. One of those was Waymo. They said they're going to invest another

[00:10:14] $5 billion in Waymo. They said they're seeing progress there. Curious what your thoughts are here, thoughts on them spending this much on a, I guess, I don't want to call it a moonshot because

[00:10:24] it's a little more proved out at this point. It's pretty tangible right now, the Waymo thing. They have some now experience to go off of in San Francisco at least. They're generating real revenue in that business. Yeah. For those who do not know and

[00:10:41] to be honest, I'm pretty new to it too because Waymo is a self-driving car service. Think of driverless taxi service that is now fully commercially available to the public in San Francisco, in the whole city limits, which is pretty freaking awesome. I mean, I've seen videos

[00:11:03] of people posting and reviews of people being like, this is so much better than Uber. You know what? My most recent new position is Uber. I just think that the network effect

[00:11:15] that they built is spectacular with the drivers, but it's like, what if you don't need those drivers in a Waymo type future? It's not proven out full scale, but they're doing it now fully in San Francisco. It's going to take a long, long time for that to happen

[00:11:36] in other cities. It's going to be there, but this is a pretty big risk, I think, to the taxi Uber-type business. Yeah. You look at it, just think about Uber. What would their economics

[00:11:52] look like if they didn't have to pay out drivers? Well, they got to own the cars in this case too, but they'd be more profitable. You could either have a business that's very large, huge addressable market, very profitable, or Waymo could potentially in the

[00:12:08] markets where they compete with Uber under cut on cost. Right. Exactly. I think that that's right. It's kind of like when I look at the freight business, it's like, okay, well, electrification and driverless stuff, this could actually be really good for the trucking companies. If their largest

[00:12:26] pain point is kind of eliminated when it comes to cost and drivers and hiring and such a shortage of drivers as well in North America, maybe that's removed. But then it's like, but is that a wedge

[00:12:40] in for new players? That's what I'm wrestling with right now. Is this Uber going to be able to flex their ability that they already have the license in all these cities and built out

[00:12:51] that network effect? And it's a brand that people are now comfortable with and city authority people that are making decisions are comfortable with, or is that a wedge in for a new player?

[00:13:02] These are the things that I'm trying to balance right now. Yeah, I think I would be surprised if Waymo had any impact on Uber's actual financials for at least 10 years, just because of the regulatory hurdles. Correct. Yeah, I'm aligned with you. All right, let's talk about CrowdStrike.

[00:13:23] Simone and I mentioned quickly, as it was happening in real time last week, that they basically pushed an update. It had, I forget how many Windows devices were affected, but millions and millions of Windows devices were affected. Do you see those videos of Delta

[00:13:40] Airlines flights in Atlanta just like absolute shit show at the airport? Yeah. So it's caused some real havoc. And if you were following, Henderson, you probably, I mean, you probably were, you're following the stock rebounded really quick where everyone's like, okay,

[00:13:56] they pushed to fix, it's fine. And then a couple of days drag on and then investors are like, wait, wait, wait, this is actually really bad for CrowdStrike. And I think it's

[00:14:04] on like what now 35% drawdown. I know, it was funny to see the process that probably most of the investment community, anyone that's involved with CrowdStrike went through here because you see the news, your gut reaction is, okay, this is bad. But then your next reaction is,

[00:14:20] wait a second, look how much this reveals how critical CrowdStrike is to the internet infrastructure around the world. Maybe people will open their eyes to CrowdStrike from this. And then you realize, okay, wait, no, this is actually bad businesses are being impacted.

[00:14:36] Customers are probably going to start to have to look for other vendors. You had Elon Musk tweeting, we've gotten rid of CrowdStrike in all our companies. And all of a sudden it's like,

[00:14:46] okay, yeah, yeah, this is going to be an issue. And I don't know how it's going to impact them financially. But yeah, there are businesses that like Delta, for example, it's been a week since this happened and they're still struggling to recover. And it certainly

[00:15:01] impacted their customers financially. Yeah, it's just a reputational risk thing from my perspective because it was not a failure of their product like there was no a hack. This would be way worse if there was like a huge hack that affects like the integrity of

[00:15:18] CrowdStrike cybersecurity product that was at risk. No, it was just kind of like, you know, an accident when updating the system that affected a lot of devices downstream. But this is a B2B SaaS company. And B2B SaaS is built on confidence in the buying process.

[00:15:42] Sellers are just trying to instill confidence in their prospect that they're selling to that like using us as your mission critical end to end security with the Falcon product is going to be a good career decision for you. And now everyone in their pipeline, at least in

[00:16:00] the short term, is going to have that confidence removed. So this I do not think this is a CrowdStrike killer, but you're probably going to have a year or a year of bookings that like

[00:16:14] they're just not going to have the same growth on the top line for their ARR and bookings. Like there's just no way this is a confidence game. Yeah, you think about maybe there's penalties,

[00:16:25] fines, whatever that's going to impact them. But exactly what you said, how much does this deter future customers from signing a deal with them? I just I could not imagine being the product manager or the developer, whoever it was that pushed this waking up Friday morning

[00:16:45] endless Slack messages or whatever it was. Just oh boy, that's you're in for one at work that day. Now the stock is basically flat year to date now CrowdStrike. And this has been a stock I've

[00:16:57] really wanted to own, but it's just been so expensive. And after this pullback, I'm like here's my chance. And then like, it's still so damn expensive. It's still such an expensive stock.

[00:17:11] And and you know, I think it's worth it. I think that people are going to forget about all of this in a year or two. You know, people in the moment are so reactive. There's been so

[00:17:24] many it outages that people just completely forgot about because they're saying that this is the only one that's happened ever. It's like, dude, remember when Facebook was just down for like

[00:17:34] two days a couple years ago? It was just like fully down for like, I don't know, like 24 hours, 48 hours, you just forget about it. You just forget about it. You just completely forget about it. And that's exactly what's going to happen here, despite everyone's reactions to this. But

[00:17:50] this is not consumer. This is not I can't use Instagram for a day and a half. This is I'm a buyer of enterprise security software, and you've just made it really hard for me to justify this

[00:18:06] to my boss. Yeah, this also problem. This may have had longer term repercussions as well versus like Facebook's outages because of, you know, I think it's mostly the airlines that really struggled

[00:18:21] with it and weren't able to get back online as quickly. But some of the customers were probably losing a ton of business. Yeah. But yeah, it's 20 times sales still after 35% drawdown. Still so expensive. Fantastic product, spite what's happened here. Fantastic product. Chipotle,

[00:18:39] the ticker CMG, right? Chipotle and Mexican Girl. They, you know, FinChat definitely supports their growth domestically same store sales growth when the teams altogether in Toronto. That's a big lunch staple for us. You're from Seattle for the listeners to know. But when we get the

[00:19:03] whole team in Toronto, that is a fan favorite for lunch selection. Great quarter. They just released and what's happening here? Like people mentioned that they're reducing the portion sizes. I don't know anything about this. What's going on? Yeah, it seems we're not the only ones supporting

[00:19:20] the top line for Chipotle. There's a Wells Fargo analyst who took conduct research, ordered 75 of the same bowls to, I guess, do this experiment. Basically over the last quarter there's been a lot of, I don't want to say outrage, but people thinking that Chipotle,

[00:19:41] there's some sort of like an internal mandate or something directive to reduce the portion sizes, maybe increase the rice portions, reduce the meat portions, that kind of thing. And it actually became like this trend where people would film the service workers and

[00:19:57] like order them and just like try to put the pressure on them. And so it actually became kind of like a concern at the corporate level. And the CEO came right out this quarter and first

[00:20:09] of all, 11% comp store sales on a business that's this big already very impressive. But he says, I want to take a minute to address the portion concerns that have been brought up in social media. First, there was never a directive to provide less store customers. Generous portions

[00:20:23] is a core brand equity of Chipotle. It always has been and always will be. It's nice to address that. And this Wells Fargo report actually after ordering 75 bowls, he measured the weight, measured the portions and he said there wasn't any sense that there

[00:20:41] was shrinkflation going on, but there was huge variability. And he's like, there's definitely some room for consistency here. Like some of them were half the size of others despite the same order.

[00:20:56] And you just kind of think if you had some sort of automated system that was giving those portions, it might solve that. But I guess good quarter all around. My guess is that this will kind of fade

[00:21:08] out and concerns over shrinkflation here might die down a bit since it doesn't seem to be really playing out. You know that spoon scooper thing that it basically looks like a measuring cup

[00:21:23] with a, it's a measuring cup on a stick. And they use that to kind of portion the meat when you go to Chipotle. But you'd think that that would be like, okay, you just fill that up and

[00:21:36] then this is going to be the same every time. And then you don't have this variability because people especially get sensitive around like how much meat they're getting. You know, if we order a steak

[00:21:45] or you order chicken, I want to make sure I have a healthy portion of that stuff. Now you'd think that that would solve it, but some people don't really fill it up the whole way when you're at

[00:21:57] Chipotle, like it's coming out of their paycheck. And I always just give them a look like, really? You couldn't just fill that thing all the way to the top, you know?

[00:22:08] Yeah, I bet they get a lot of those looks. The other thing is it's really like you could have like an actual measuring spoon where you just fill it to the top. But these are really just large spoons

[00:22:19] like it's stuff's going to fall out. The portions are going to change. I think there's room for consistency there. But yeah, just you feel especially when the person in front of you or behind you got like, I don't know, like 50% more. Just looking at him like,

[00:22:39] I don't know if I'm going to be able to afford guac with this fatal financial hit that I just took. Yeah, there's definitely room to you leave room for error and then you leave room for people

[00:22:51] to get disgruntled with the employees if you don't just automate that system. Like if there was a way to just make it the same every time, it'd be it solve a lot of problems. Yeah, it would definitely make them employees lives. Obviously, I don't say anything like I

[00:23:03] don't actually care. But I definitely in my mind and probably you can see it on my face like, really? Come on, man. Just, you know, top that up a little bit. You know? Give me a little.

[00:23:16] Let's move on to luxury. Payments and luxury have been the things getting smoked. Luxury has been it's been tough, tough year. LVMH reported earnings, Burberry which I'll call kind of luxury. What's the story here? I mean, this has been LVMH has been one of the easiest

[00:23:37] like high quality names to own and you know, it's testing shareholders this year. Yeah, there's been in general Burberry was one of the first to report this quarter of luxury names and they reported negative 21% comp store sales. And

[00:23:55] a lot of people's knee jerk reaction was, okay, this isn't real luxury. This isn't like a true luxury brand. Let's you know, let's wait and see. And a lot of the stocks actually sold off

[00:24:04] like there's a lot of sympathy declines where LVMH sold off carrying the cell off. I call that the Snapchat effect. Yeah, exactly. Being the first to report, you can have a lot of ramifications throughout your industry and they came out so Burberry bad

[00:24:20] quarter. LVMH comes out and it wasn't necessarily a bad quarter, but revenue growth year over year revenue growth has just consistently slowed. It was 20% tens and now you're getting 1% growth, which still okay, at least it's growing in spite of a difficult market. But the

[00:24:42] during the LVMH conference call, they said the aspirational customers in the US as we commented in Q1 of this year are a little bit under pressure due to inflation and higher interest rates that

[00:24:52] are taking both a toll in terms of purchasing power, particularly in the US into a lesser extent in Europe. A lot of people just shrugged it off initially and said a lot of the weakness

[00:25:03] is coming from China. The consumer environment over there is difficult. So kind of there's chalking up the decline to that. But in this case, LVMH came out and said there's some weakness across the board. Caring CEO, they just reported that he said they're having a challenging

[00:25:17] market environment which adds pressure to the top line. It basically seems like maybe tightening a budget, tightening of wallets across the board. I don't know. Maybe this is temporary. Maybe it's just a tiny little slowdown. But I do think this probably presents some opportunities

[00:25:34] because you look at LVMH, you look at Hermes, Ferrari especially. These are businesses that the consumer spending is very resilient even in tough times because it is the most affluent customers. It's the most affluent. And for those who are, I'm sure many of you know LVMH

[00:25:54] is brand but for those listening who are not familiar with it, it's the French conglomerate Bernardo has put together here. Some of the brands, obviously you know Louis Vuitton, Moet Hannissey. I would say half the portfolio being leather luxury and the half the other one

[00:26:16] being spirits like alcoholic. Is that a fair assessment? The bulk of the profits really comes from fashion and leather goods. So a lot of the handbags is very profitable for them, the Louis Vuitton type purses and that kind of merchandise. Right, yeah. So it looks here

[00:26:34] in order of segments here on FinCiat in terms of revenue, fashion and leather is the number one. Then watches, oh no, then selective retailing, so more clothing. And then watches and then perfume and cosmetics which is the Sephora brand if I recall correctly. And then

[00:26:55] wine and spirits. So that is not the order I was expecting. Yeah, wine and spirits, it's also been a difficult business for them. I think a lot of people have kind of thought about maybe LVMH

[00:27:06] would spin this out eventually but just doesn't seem to be the case. Yeah, fair enough. Like a lot of people will buy fancy alcohol for special events or something but it just doesn't seem that popular. This is purely anecdotal, super anecdotal. Take this for what you will. The

[00:27:29] millennial and younger generation doesn't really flex like that. Like they'd, you know, like there's some sort of, maybe if they go to the club they buy some bottles like some chump but like, you know, they're flexing in other ways not necessarily buying fancy bottles of Scotch.

[00:27:48] Of course, some people aren't into that and I think, you know, I like that stuff. But it doesn't seem to be as popular and alcohol consumption is just not in for the Gen Zs. Yeah, alcohol growth has stagnated and even started to decline among younger generations.

[00:28:07] There has been sort of a shift to premiumization so people that were maybe previously beer drinkers have maybe shifted more to cocktails but still even hard alcohol spirits, it's definitely not been a growth business. And the other thing that's become more popular is influencers,

[00:28:27] celebrities launching their own brands. Their own stuff. Yeah. And it's kind of, it's taking share from some of the leaders that were previously had just significant moats, really hard to disrupt. Diageo has, they've kind of seen the ramifications of that in

[00:28:42] their top line. So the other thing they've had to do is go out and actually acquire some of these. I can't remember who's it was but some celebrity they ended up acquiring a couple years back for

[00:28:53] a hefty, hefty price tag. Was it Ryan Reynolds' gin? I forget. Not aviation gin. It was a tequila from a celebrity that's a little more like, I think older type celebrity. Okay. We wouldn't

[00:29:10] have known quite as well. Let me look it up. Okay. Yeah. No worries. But dude, this playbook is so obvious. It's like, hey, I'm the rock and putting out my tequila. I'm going to sell

[00:29:24] a zillion bottles of it. I'm going to take a bunch of capital from the churn in group who is like extremely well-known private equity type name for working with creators and celebrities to launch their own products and brands. And there are experts at it.

[00:29:40] It's just such a good playbook. Like it's an unbelievably good playbook. Yeah, I just quickly looked it up. It was Cosamigos who was founded by, I don't know if it was founded by or just like led by George Clooney. So it was, he's older. You won't know him.

[00:29:57] I was going to say Clooney, but I didn't know he made Cosamigos. Yeah. And I think it was a pretty big buyout. Man rocket George Clooney. I like George Clooney. All right. Let's do some questions. You put together some questions here. We'll go,

[00:30:18] I can answer them then you go. We'll do that order and we'll go through. Your question here is what's the fattest pitch you've seen since you started investing? Good questions you put together here by the way. What's the fattest pitch I have seen?

[00:30:33] I like to think that my fattest pitch is still yet to come. I mean, COVID widespread sell-off, market sell-offs is probably pretty easy. But the thing about fat pitches is you already have

[00:30:44] to have that conviction built up over time and then the market give you the opportunity at the same time. So widespread market sell-offs downturns where like everything is down bad. Those are always to me the most obvious fatt pitches because you don't even have to

[00:31:02] question yourself if is it the company or is it the market? In this case, you know it's the market. So I like to think that my best fatt pitch is still to come. I will give the example

[00:31:15] of, of course they're very big show sponsors here, long-time sponsors EQ Bank, but I bought the stock. I think it was 2017 or something like that, like years and years ago now,

[00:31:30] that it was on a 50% like week, like in one week there was this huge drawdown because their biggest competitor in Canada in the mortgage space called Home Capital Group was in a massive fraudulent bad loan situation, buff it through them a two billion dollar lifeline at the

[00:31:50] time actually, which is an interesting story. And their biggest competitors in absolute turmoil, they're launching this new DIY online banking service called EQ Bank out of a spun out of equitable group. This company was crushing it and their biggest competitor is falling

[00:32:07] and it's like, you know, I'd get thrown out with the bathwater. So that was probably one of my best fatt pitches and I've made a ton of money on that investment. Yeah, it sounds like

[00:32:17] it would have been quite the good setup when a whole area sell off and they're not really quite as impacted. In fact, benefiting. Yeah, yeah exactly. The with COVID in general, it was such a unique

[00:32:31] time because when I think about a fat pitch, I think about companies that are established where it's businesses I know and for one reason or another, the stock is sold off and it's

[00:32:47] businesses with a margin of safety. Not necessarily the valuation as a margin of safety, but you know the business is all right. With COVID, typically when you see like a 50% drawdown, there's some reason for it. There's been some, you know, maybe the revenue stopped growing,

[00:33:00] whatever it is. And there's reason for it. With COVID everything sold off 50%. You had no numbers to like base that off of. You know, all the trailing numbers still look great. So a lot of

[00:33:11] people may be made for easy buying decisions. But yeah, so COVID definitely some fat pitches. I'd say the other ones where I saw it felt like there was a lot of opportunities were there was that little mini banking panic last year when Silicon Valley Bank went under.

[00:33:28] I think it was first Republic was one of the other ones. Yep. And there was widespread concern that and maybe just a flight to safety where people didn't want to be involved in financials

[00:33:39] at all. And one of the stocks that sold off hard from that was American Express. And if you just looked at American Expresses, A, their customer group, but B, their business model is very different

[00:33:49] and they ended up being actually in a really good situation and the stock was really cheap. And that was probably that was one of the biggest fat pitches that I'd say I missed.

[00:33:57] I think in general there, if you looked in and you looked at what was causing the panic, those banks individually, they had huge customer concentration for the most part. Most part Silicon Valley, a lot of them were venture capital customers that talk to each other.

[00:34:12] So it's really easy to have that kind of widespread concern among their depositors with American Express. There was just no concerns with that not to mention it was the most kind of the higher end consumer. So there wasn't as much concern on the loans as well.

[00:34:27] So that just ended up being, I can't remember. It must have been a year ago now where American Express was really cheap, had sort of re-accelerated with younger customers, more and more of their customer base is coming from younger generations and it's very popular there. So

[00:34:43] they seem to be kind of a secular grower and they got really cheap for a certain time period, but unfortunately missed out on that one. One of my favorite charts that you share is the American Express average fee per card.

[00:34:58] It's just like the most beautiful graph, like pricing power there is just spectacular. Yeah, I think it's grown like 10% annually, the average fee per card. People are happy to pay it too. Now typically those tend to coincide with better benefits as well with the cards.

[00:35:16] People don't feel like they're just getting chipped. It's usually, they can raise the prices because they're raising the value they provide to customers. So that doesn't necessarily mean like profits are expanding because of that, but it is,

[00:35:29] yeah, people are very willing to pay high prices to have Amex cards and it's a flex when you pay at dinner. It's one of those legacy brands that's striking a chord with young people too, which is a very important transition. Like what we were just talking about,

[00:35:45] young people maybe not into buying expensive bottles of spirits and LVMH is seeing that in the financials. That transition for American Express to the next generation might be even stronger than historically. So you show up to the concert and you get to go in a separate line

[00:36:04] and you're like, hey, come with me. Come with me friends. Don't wait in that peasant line and you save yourself about two minutes tops, but it feels great at the time. The airport lounges, those two.

[00:36:17] Yep, exactly. The lounge feels great. Your next question here, what's your biggest error of omission you've had in your investing career when you knew the business was doing well, looked like an attractive price, but you didn't buy it? All right. When I was in university,

[00:36:33] there was no stock I looked at. And for context, I started engineering school in 2013. There was no stock I looked at more than Facebook, aka now meta. I feel like such an idiot for this,

[00:36:48] because I would tell everyone I knew to buy the stuff. And by the way, it was that like 120 billion in market cap at the time I just looked on the chart. So there was no stock I looked

[00:36:59] at more and kind of was a stand for it. The numbers were unbelievable. The margins were unbelievable. And I feel like such an idiot for this one, because I feel like me, the period

[00:37:15] I grew up at, the exact time I was born to where I'm at now, there's no kind of position or view to be in the right angle to have an opinion about it and see as you grow up in the internet age.

[00:37:30] I got my Facebook account in grade six, so I was like 11 years old. I remember very, very distinctly in my buddy's basement, there was like eight of us, and we all made Facebook accounts. I remember that summer afternoon distinctly. For context, I'm 28 now. So

[00:37:47] we're very early. I had Instagram, one of the first like way, way before the Zuck purchase. And that wasn't long. I think they only had it for like a year before he bought it.

[00:37:59] And so I watched every kid in my high school go from what's that to it being the most popular app on everyone's phone. And so it would have been around 17 times my money and every few

[00:38:11] quarters there was some bad story that had some good entry point. And then in 2022, there was obviously that massive 70% drawdown huge opportunity. But it was hard, man. I thought Mark was losing his marbles with the metaverse stuff. And I still think that that might be true.

[00:38:30] It's just that the core business prints so much cash that maybe who cares? Does it matter? I don't know. So that's kind of the story with my miss. Yeah. It's funny how some of my best investing insights have just been like,

[00:38:45] oh, I use this all the time. The valuation seems reasonable. Sure. I'll buy it. And if you just held that over time, it's amazing the returns you would have got. It reminds me of the mid-wit meme. It's like... Yeah, exactly.

[00:39:00] It's like, no, but did you look at... Did you look through all this analysis and listen to 48 conference calls and do all this stuff? And it's like, no, I use the service and

[00:39:10] I like it. Yeah, exactly. And it's like you can worry about quarter to quarter, but when it's a business like this, usually those efforts are kind of futile. 2022, I was in the camp of,

[00:39:24] okay, Mark Zuckerberg is going to spend just endless money. This is something I can't own. But you look back on it and it took one comment on the conference call for every investor to be

[00:39:35] like, okay, this is very ownable because all he said was like... The year of efficiency thing? Yeah. And he was like, oh, we're going to invest, but we're still going to grow earnings. And I was like, oh, okay, they're not just going to do it mindlessly.

[00:39:49] Why didn't you open with that, Mark? Yeah. He had to give us a year of very concerning CAPEX guidance before he decided to please all the investors. But yeah, that was definitely a huge opportunity

[00:40:03] for me. And I guess you could probably say this with like pretty much any big tech company at the end of 2022. It was like an easy buy because it was such good businesses in general and the

[00:40:15] stocks had sold off. But late 2022, Amazon had declined 55% from its highs and it traded at a market cap of just over $800 million, which at the time, I probably would have... If you offered AWS to me, all of AWS for $800 million, you could justify buying that. Not

[00:40:38] to mention they have the biggest online retailing business in the world. Probably at what like an almost a 90 billion run rate at that point, right? Yeah. And I think the forward was... You were basically paying forward sales. I'm pretty sure you mean $800 billion in Mark.

[00:40:54] Sorry, $800 billion. Yeah, not $800 million. Of course, you would buy it at that price. But just like you look at what was the narrative around it at the time and for anyone who doesn't

[00:41:06] remember or didn't follow Amazon at the period, there was during COVID, they had so much growth pulled forward. For context in 2020, their retail sales grew 39%. And that was off of a $245 billion base. So I don't know if you've ever seen that level of growth at that size.

[00:41:24] So in 18 months, Andy Jassy kind of went on this conference call and he said we had to make some decisions and we decided we're going to essentially double the size of a fulfillment network in 18 months. And he said it would have taken six to 10 years,

[00:41:36] but they had to basically supercharge it. And then following that, there was this huge pullback. So I actually... I went back into kind of my notes around the time and it says, around the end of 2021 to the start of 2022, shopping trends started to revert. People were

[00:41:51] spending less and shopping more in person because you're kind of coming out of COVID. So there was that big online supercharge in sales. I said this led to excess capacity across their fulfillment network. And at the same time, nearly all their major variable costs were skyrocketing. So

[00:42:06] ocean freight, air freight, trucking, fuel costs, they all were contributing to this increasing cost of revenue. Not to mention they had to double hire... There was a bunch of duplicate roles across their fulfillment centers because people would say, oh, I've got Omicron because

[00:42:23] there was that second variation. And they couldn't necessarily fire them because they had it, but they had these duplicate roles so they had to double hire. And so it just led to they went to unprofitable on their retail business. And then cloud revenue was slowing

[00:42:39] down at the same time. So everyone kind of thought this is structurally unprofitable, but if you just like Amazon had proven that they can be profitable, they'd done it for five years prior to that. And so when you actually go back and you look at the operating income,

[00:42:54] it went from $30 billion to $13 billion across the whole business at its lowest. And then it's since shot back up to around $50 billion. So if you had a sense that, okay, this will actually, a lot of these cost increases are temporary and they'll slowly start to fill out that

[00:43:13] extra capacity. It was certainly an easy investment. I think it's like doubled in the last two years since that point in time. Yeah. And another one exactly like the meta example where it's like outrageous cap expense, but it's like in hindsight, it's always 2020. But it's like

[00:43:34] Amazon was always going to be the company that does this so that their fulfillment network and that magic of Amazon, when you press buy and it magically appears at your house at like an creepy times speed and, you know, like efficiency and reliability.

[00:43:53] That's in there in blood. Like relentless.com go to relentless.com. It redirects you to Amazon.com. Like this is truly the Jeff Bezos way. And so like I look back, I'm like, why was anyone surprised

[00:44:09] that they did this? Yeah. And you know, sometimes companies pour money into CapEx and you don't really know what the return's going to be. You kind of think like maybe some of these, some of the company's AI initiatives, it's maybe expensive on the CapEx line and you

[00:44:24] don't know what it's going to be. But Amazon, every time they add a new logistic center, new trucks or new planes, you know it's helping the delivery speeds, the efficiency, whether it's the other half of CapEx is AWS servers. Anytime they're buying more AWS servers,

[00:44:43] it's because they are telegraphing more demand. So higher CapEx for Amazon is typically a good sign. Yeah, I'd say so. But you know, the investing community is very short-sighted. Definitely. Yeah. And I think that they've been burned too on a lot of stuff, right? It's like

[00:45:05] the other bets from Google, I think maybe Waymo is the most exciting things to come out of there in a long, long time, right? Yeah. I mean, if all the CapEx were coming from Alexa or Ring cameras, then maybe there'd be cause for concern. But Amazon-

[00:45:21] Corbis. Yeah. The Corbusiness higher CapEx tends to mean more demand is incoming. Last question. How has your investing strategy evolved over time? Do you want to go first on this one? I think I have an answer, but I want to think for a second here.

[00:45:40] Sure. For me, I have skewed more and more towards businesses that I feel like I won't ever have to sell. I think when I started, maybe the first two years, three years that I was investing,

[00:45:56] I was very valuation focused. And I think that led me to a lot of opportunities where even if it worked out, I was going to have to sell and redistribute those earnings somewhere else. I was going to have to find a second idea if I had to sell.

[00:46:15] The more and more that I study the best investors, the great fund managers of all time, all their biggest winners came from things that they just held for a long, long time.

[00:46:29] You can find the cigar butts and stuff like that. And if you're a fund manager, it pushes you towards that because you want to manage some of the short-term numbers to keep investors happy. But

[00:46:41] if you're an individual investor, I find myself trying to find really high quality businesses. I still am somewhat stringent on valuation, trying to find a reasonable price. But I'm happier to... You're trying to not do silly things.

[00:46:57] Yeah. I'm moving away from the trying to find the hidden gem where I'm somehow the only person in the entire investment universe that's discovered this thing to, okay, that's a valuable business. It provides a valuable service and I think it's moat is going to widen in the future.

[00:47:18] I think it's worth owning. And frankly, as an individual investor, you can be a little more lenient on valuation because your time horizon is longer, assuming you're on the younger side of things. It's longer than most of the funds that own it.

[00:47:34] Yeah. And if some disaster or some bad news crowd strike story does happen, you don't have to go back to your client with your tail between your legs and tell them some story. Yeah, you're not getting redemptions. You're getting consistent income hopefully.

[00:47:53] If you're making money on a regular basis, you can consistently add more when those opportunities arise and not have to explain your previous mistakes. Yeah, well put. Dude, ditto on this especially around just wanting to own things that I

[00:48:06] look at. I look at my portfolio and I'm just like, I feel real good about this over the next 10 years. Numbers aside, just think that I really like, I posted on Twitter how you can kind of take

[00:48:19] all your portfolio weightings now on the dashboard and just see the portfolio statistics of everything. And I just look at that, I'm like, this looks like a really good stock. If it were a telecompany. Yeah, in aggregate, this looks like a fantastic

[00:48:35] stock, like the portfolio weighted metrics, whether it's like revenue and EBITDA growth and valuation and all that kind of stuff. It's like this looks like something you'd probably want to own. I'd say my investing strategy over the last five-ish years has trended towards more concentration,

[00:48:56] more and more appetite for owning fewer ideas at size. How do you feel about starter positions? Oh, we've talked a lot about it. I actually have a very hot take on this. I think that they're complacent. I think starter positions are the definition of complacency and laziness.

[00:49:16] And that doesn't mean adding to a position in a small way and then continuing to add to it over time is a bad thing. I think that's a really good thing. And I like the framework that

[00:49:27] Chuck Acre has on workbench positions and core positions. The example I use is, I added ASML and it's continued to remain a workbench position because over the next 12 months, I didn't think that it was at a good valuation anymore, but I don't sell. So it's remained at

[00:49:48] a workbench position instead of just like, I can continue to accumulate it and it become a core position. So we have two definitions of this. I think mentally that's a huge difference compared to

[00:50:01] hey, I am going to do this starter position and learn more later. Like I'll borrow my conviction now and build it myself over the next whatever timeframe. That's how I view starter positions and I guess it's just definitions at this point. But to me, that's a completely different

[00:50:20] mind framework compared to I have 100% conviction now, I'm going to add some now and I can continue to add more over time if the market allows me to. Yeah, I think that's probably

[00:50:33] accurate. A lot of the times, anytime that I've thought, well, maybe I'll do a starter position. It's usually because like I just haven't done enough research yet. There will be some cases where if it's a business that I know kind of peripherally, it's one that

[00:50:49] I've looked at before, but I've never really, really dug in. And I know from the sidelines that it's a good business. It's pretty high quality. If that becomes sort of a fallen angel where there's

[00:51:01] one day or two days where there's big drawdowns, sometimes I'll be like, ah, you know what? I'll buy a couple shares. Just I think I read this, there's this investment blog that I read

[00:51:13] and the guy was he bought it and he couldn't really justify it. And he just said, you know what? I'm a sucker for a fallen angel. I think I'll do that occasionally with the

[00:51:23] starter positions and then start to read up if I need to get rid of it. And I feel like the drawdowns are justified. I can always do that. And I think that that just coincides with my strategy around your question of like

[00:51:36] like a fat pitch because that could be a fat pitch situation, but because I don't like doing starter positions without 100% conviction, then you end up with like I end up with my anti-goal of owning a lot of positions. Yeah. Because I'm trying to go into extreme concentration.

[00:51:56] So if I've built out that immense concentration, it's probably going to come out a fat pitch is going to come out as a full core position on day one. Yeah. I think some of the fattest pitches that I have seen over my time investing have come from within

[00:52:10] my portfolio. It's because you don't have to do the research. You already know the business and you already have the conviction. Yeah. You've been along for the ride. So you know what the business is like. You've kind of gotten a sense of who management is and

[00:52:23] whether you trust them or not. So yeah, you've got that conviction to begin with. I'll leave you with the analogy from the venture world. So just to simplify people for people here. So Henderson, say you have a company and I invest a million dollars into

[00:52:42] your first round of venture capital. It's like, yeah, you sell me 10% of the business for a million dollars. It's valued at 10 million or something. I will have pro, if I'm a sophisticated investor and I have correct documentation, I will also have pro rata on your next investment

[00:53:01] to maybe in some case increase my position, but also at least at the minimum top up so that I can keep my 10%. So basically, I'm giving myself the option that next time you go

[00:53:16] raise more capital for your business. I have the ability to invest more because it's privately traded. So I can't, it's privately held. So I can't just go buy shares on the open market

[00:53:27] of your startup, but this gives me the kind of ability to buy more by having this pro rata rights. A lot of big VCs, the most money they make is on those pro rata little investments to top up.

[00:53:44] You know, like a risk adjusted return, those are usually the best money they make on a risk adjusted return because they've gotten to know the business and the founders and the team over the last however long, right? Like that's the same thing with you already being an

[00:53:59] owner. Yeah, it's way less speculative. You become very acquainted with it and some you just know intimately well. All right, that wraps it up. Dude, thanks for coming on the pod today.

[00:54:11] And we'll, the pod goes on here Mondays and Thursdays. So when I tried to record an episode on our usual Tuesday and my neighbor is doing, I live in an apartment midtown Toronto and my

[00:54:29] neighbor is doing Renault's quiet all week. We're just about to start recording and you start like hard core drilling and hammering like two minutes before we pressed record. It's like, all right, this is going to work. I'll call Henderson. Yeah, I'm happy to come on. It's

[00:54:48] always fun to join and second time was fun. We'll have a third time here at some point as well. We sure will. Thanks for listening. If you have not checked out FinChat, you know, you got the guy doing all the content right here on the line and Ryan

[00:55:05] and you can get 15% off by using code TCI, 15% off a plus or pro plan. But if you just want to use it for free as well, you get lots of data. So more than welcome to go use it free at finchat.io.

[00:55:20] We'll see in a few days. Take care. Bye-bye.