The investor who made 325x their money

[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

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

[00:00:14] The Canadian Investor podcast welcome into the show. My name is Braden Dennis as always joined by

[00:00:22] the visionary Simon Belanger

[00:00:25] Buddy it is good to see your face

[00:00:28] I see the show goes on as always

[00:00:31] You know i'm on the road

[00:00:32] Recorded in this show, but it's good to good to see your face

[00:00:35] And uh looks like we have lots of fintech for the discussion today. Yeah, I think yeah, we do so

[00:00:41] I think it'll be fun fun episode. It's been a while

[00:00:44] I mean I had the

[00:00:45] Dan foge to one and only take your place for an episode but uh glad to see you back and

[00:00:51] You know and having fun in Spain, right? That's right. You guys settle the old the age old debate stocks versus real estate yet

[00:00:59] It's solved now right like it's uh

[00:01:01] I mean we both pretty much agreed on most points

[00:01:04] So it's just uh, it was a very balanced discussions. I think uh, Dan and I align a lot of topics

[00:01:10] So for those who know us they won't be really surprised

[00:01:14] Yeah, it's funny with these kinds of things. It's like

[00:01:17] Which one's better? It's like well, how long do you have?

[00:01:21] First of all, it depends and second how long do you have?

[00:01:25] So I think that that's good that you guys split up two episodes

[00:01:28] One on our show how much money do you have and how much money that do you have maybe that maybe that's part of the it depends part

[00:01:34] Yeah, yeah exactly

[00:01:37] All right, let's kick it off with uh, you know just a little bit of anecdotal evidence or

[00:01:43] What you know the smart money will call boots on the ground research or channel checks

[00:01:49] I'm gonna go with channel check so I can sound a little bit more sophisticated

[00:01:53] I'm like the winnie-the-poo meme with the with the suit on you know, that's that's me right now

[00:01:58] So the last time I was in spain was in 2018 and

[00:02:03] You know you and I how we operate how the listeners of this podcast operate

[00:02:09] first thought

[00:02:11] Is what can I learn? What's changed? Which companies have a big presence here?

[00:02:16] Are there any nuance local info that investors might care about?

[00:02:21] It's like if you listen to this podcast, you know

[00:02:24] There's a good chance that you get off the plane in a new in a new country and start thinking about

[00:02:30] Different companies companies that have surprisingly large presence

[00:02:35] Companies that don't have a presence at all

[00:02:37] How can is it how can you make money in this situation?

[00:02:41] The people in this podcast know that's the stuff that they look for when they get off the plant

[00:02:45] Would you agree?

[00:02:46] Yeah. Yeah, that's what I do when I go to a new country even the u.s. Sometimes right you can forget

[00:02:52] You'll see a brand and you're like what the hell is this?

[00:02:55] I've never seen this before but going to somewhere like spain. I've been to uh, scandinavia

[00:03:02] Same thing over there. Obviously there's brands that you see all over the place like there's mcd's

[00:03:07] everywhere obviously, but

[00:03:09] It is interesting to see some of the brands that you've never seen at home or sometimes it's

[00:03:14] It is the same company, but they just have a slightly different brand over there. That's more of a specific market fit

[00:03:20] That's right. It's like the first time

[00:03:23] I made the connection

[00:03:25] that this was before

[00:03:27] kush tar had rebranded the canadian

[00:03:30] Convenience stores to circle k and then I made the connection that like i'm down in florida and I see so many circle ks

[00:03:37] This is like probably by footprint the most successful

[00:03:40] You know convenient store gas station combo here

[00:03:44] And before I had made the the connection that they had bought that a few years prior

[00:03:50] You know these you make these kind of connections and speaking of that actually care for I might be saying that wrong the french

[00:03:57] From france. Yeah careful. Yeah, yeah, they're um a large they're big in europe. Yeah, yes

[00:04:04] not c store but kind of like

[00:04:06] Grocery store but grocery stores in europe are different than grocery stores

[00:04:11] Here in north america and I see those a lot here too. So anyways, that's that's that's a roundabout way of me getting to

[00:04:18] Since 2018

[00:04:20] Since the last oh, I do have a question regarding careful

[00:04:24] Go is the co as well loved as uh gailin watson

[00:04:29] Yeah, I'll have to ask

[00:04:31] I'll have to uh gailin weston weston there you go. Yeah. Yeah, he's loved

[00:04:36] in canada, huh? He's just like

[00:04:39] People hate him people hate him, but I I kind of like him. I don't know. It's kind of funny. Right? He capitalized in me

[00:04:47] Yeah, he kind of like this is his own doing though

[00:04:50] Like he's probably the one that wanted to be the face of la-blas out there where you never hear of the

[00:04:56] co's of the other big grocery chains in canada

[00:04:59] You only hear about him because everyone knows his face, right?

[00:05:03] He needs to hire the same pr firm that zuck has been using to get him on all these podcasts and uh,

[00:05:10] You know make him seem all likable. He's on a big pr tour. Yeah, it seems to me. No, that's right

[00:05:16] So back to spain

[00:05:19] credit card adoption here

[00:05:22] Is the first thing I noticed

[00:05:25] so when you travel

[00:05:27] South america was like this when I was there in

[00:05:30] 2019 ish kind of just before the pandemic

[00:05:34] It was like a big deal that like hey credit card adoptions and a new thing here. Hey, we accept credit cards

[00:05:40] It's like come come come here tourists. We accept credit cards

[00:05:43] Europe's always kind of been

[00:05:46] Somewhere between north america and that where it's like there is widespread credit card adoption

[00:05:52] but

[00:05:53] It's not surprising if they don't take credit card. So you should have cash on you, you know what I mean

[00:05:59] It's like you can't just leave the house with apple pay and be fine

[00:06:04] In Europe last time I was here and especially even in spain here, dude, you do not need cash whatsoever

[00:06:10] I'd say I will go on a limit say you need cash less than even at home

[00:06:15] The small tiny vendor the cabs the small tiny shops the barbershops even at home

[00:06:22] Like I know I need to bring cash to the barbershop

[00:06:26] They have a point of sale machine just ready to go like

[00:06:30] I'm not surprised if you just have someone like bustling and you're like, ah, sorry no cash

[00:06:35] And they just whip out like a point of sale machine at this point like it is

[00:06:39] widespread credit card penetration and adoption that I was very surprised to see

[00:06:44] Compared to the last time I was here

[00:06:46] So I looked into it a little bit the european center

[00:06:49] I couldn't find any spain specific metrics

[00:06:51] But the european central bank disclosed that just in the back half in the first half of last year you saw 15.6%

[00:07:00] increase to 36 and a half billion transactions

[00:07:04] In in europe so the number of transactions is rapidly increasing in europe

[00:07:11] I suspect that that number

[00:07:14] Is double here in spain just based on my anecdote 11th of before and after

[00:07:21] You know, I've been the kind of payments

[00:07:25] visa mastercard

[00:07:27] bull

[00:07:28] For a long time and I thought that the post pandemic would accelerate these

[00:07:35] What i'll call

[00:07:38] Accepting of digital payments, but

[00:07:41] Going to continue to adopt it. I suspected that that would

[00:07:45] You know bring forward that kind of pulled forward demand by like three or four years

[00:07:50] And I think that we're playing seeing that play out

[00:07:52] And I went on finchat because v3 is so much better at this kind of stuff now

[00:07:57] and I asked if if there's anything in the q2 of 2024

[00:08:02] That they have a weird fiscal so that this is

[00:08:05] The earnings report that they had a couple days ago for visa and I asked can you specifically talk about if they've discussed

[00:08:12] credit card adoption in europe and it said conversion to domestic cards and visa was a point

[00:08:18] Of discussion in the in the conference call. They've been actively converting domestic based cards to visa credentials across europe

[00:08:25] From 28 to 2023 over 20 million credentials that primarily ran on domestic networks

[00:08:32] Are now converted to visa visa debit credentials with millions more currently in the process of being migrated

[00:08:39] It says that there's been huge growth. It's the fastest segment in the uk

[00:08:44] Largely growth from fintech clients

[00:08:47] And they're seeing a huge demand for

[00:08:49] Olympic and paralympic branded credit cards ahead of paris olympics as well, which is interesting

[00:08:56] Seeing huge partnership renewals in in portugal on the prepaid side the credit side and the debit side

[00:09:03] As well as the rest of the european market and that they processed 55

[00:09:08] 0.46 billion transactions in the quarter which represents almost 11 percent growth

[00:09:13] Primarily and partially attributed to increase credit card adoption in you know emerging markets and through europe

[00:09:20] so, you know

[00:09:22] I look at the report and this is not meant to be a visa discussion or a mastercard discussion, but

[00:09:29] I think it's really important when you travel and when you're you know

[00:09:33] Kind of on the road to be thinking about these things because we get so caught up in like how can a visa mastercard grow back home

[00:09:40] It's really you know peak saturation at this point

[00:09:44] In terms of adoption and and and stuff like that

[00:09:47] And that's just not true across the world. It's just not true at all

[00:09:51] There's they estimate that they have a 20 trillion of transactions that they're going to be moving over from cash check

[00:09:59] Money order all this stuff that they think that they could be able to convert over the next 10 or so years

[00:10:04] So I just thought that there's a two part or here. It's one try to pay attention to these kinds of things

[00:10:11] if you're on the move and then to

[00:10:14] I am still very bullish on

[00:10:18] These two companies as well as just the digitization of cash

[00:10:23] Across these emerging markets and these companies these countries that have just been flirting with it previously

[00:10:29] So that's that's my opening segment of the day

[00:10:32] Yeah, I know I think it's a good point. I mean at the end of the day, you know visa and mastercard

[00:10:37] And you know just electronic payments in general it tends to be

[00:10:42] A good method to lower friction for consumers. I think that's why it's it's so popular like let's be honest

[00:10:48] Like there are advantages with cash one of the biggest advantages with holding cash and paying with cash is

[00:10:54] If you're concerned about privacy

[00:10:57] Clearly the most private way of payment that's going to be cash

[00:11:01] but

[00:11:02] With whichever forms of payments and I've been really kind of reading books on that and I'm I'm kind of fascinated is

[00:11:09] Whatever form of payment you think about there's always going to be a trade-off

[00:11:13] And at the end of the day is which trade-off as a consumer

[00:11:17] Are you the most interested in and clearly a lot of people and I think you and I included

[00:11:22] I mean value the convenience offered by these payment system like a visa or mastercard

[00:11:27] Yeah, it's just

[00:11:29] such a good product and

[00:11:32] they did

[00:11:33] total transaction volume

[00:11:36] so they did 222

[00:11:39] billion

[00:11:40] Transactions in the trailing 12 months and that represents over 15 trillion

[00:11:45] dollars

[00:11:46] If I'm if I'm reading this this correctly off the finch at kpi. Yeah, that's that would make sense

[00:11:51] I would say yeah, like that is at first

[00:11:54] At first I thought you were saying like 200 something billion in actual like in total

[00:11:59] Transaction volume or in sorry in uh the gross payment volume. I was like oh that seems a bit low

[00:12:05] But yeah, no it definitely makes sense. Yeah, total transaction volume. Uh, yeah. Yeah, so it's it's 15

[00:12:13] billion

[00:12:15] Based on the number here, right? So

[00:12:17] We don't we don't have a lot of numbers in these charts that typically hit trillions of dollars

[00:12:22] Unless you're talking about like huge asset managers or like a visa kpi. So

[00:12:26] It's kind of nuts

[00:12:28] No, I think that was a great segment

[00:12:30] So the next one I'll talk about is a really interesting survey I came across so the new york fed

[00:12:36] So the new york federal reserve and the uaz they did a survey on why

[00:12:41] Consumers used buy now pay later. I will add a link in the show. No well first of all great end question for you

[00:12:48] Have you ever used buy now pay later? I have not have you I've never once

[00:12:54] Done the checkout sometimes it looks so appealing. It's like just pay this

[00:12:59] And then I'm always just very like

[00:13:03] What's the catch type of situation so I've never done it. Have you

[00:13:07] No, I've never never used it. I've seen those buttons, right? There's uh, I think there's uh, like there's a bunch of different companies

[00:13:15] But after pay firm exactly after pay

[00:13:19] Block as its own. I think they I can't remember who they bought but remember there was uh

[00:13:24] I think it was like two three years ago. They made a big acquisition for one of those companies

[00:13:29] Yeah, they bought the australian one which after pay also is I think it is after pay

[00:13:35] I think that that's what they bought they bought it for like 44 billion or something which was such an over pay

[00:13:43] They they they did a buy now pay later with a bunch of equity and I think that it didn't work out for their

[00:13:50] Their shareholders ironically

[00:13:51] Yeah, exactly

[00:13:52] So there's block or square and then paypal also has its offering

[00:13:57] And I'll kind of forget about paypal and blog just here because I want to focus a bit more on the pure play by now

[00:14:03] Pay later

[00:14:04] And first of all, I think I wanted to go over before I get to the survey on how these companies actually make money

[00:14:10] Because I think a lot of people don't really know so the first main way I think or you know

[00:14:16] They get a lot of the revenues from merchant fees for offering their services

[00:14:20] So the reasoning here is that merchants might not be able to make the sell without

[00:14:25] The user using by now paylaters

[00:14:28] so

[00:14:29] Fees here are quite high and you'll be surprised especially compared to like visa and mastercard or credit using credit cards because

[00:14:36] You always hear, you know merchants in canada at least saying that credit card fees are so high

[00:14:42] And they're talking about the entirety of fees not just the fees that are charged by visa and mastercard

[00:14:47] And I think typically they're like two to three percent range

[00:14:50] I think that's the kind of numbers that they're being floated out there and by now for a total

[00:14:55] Yeah, total. Yeah, yeah depending on that's about yeah

[00:14:59] We actually did a content piece on this and I can go mass into detail another episode

[00:15:04] But it really just depends on intern interchange fees. See you're looking at around

[00:15:09] 2% a couple extra basis points a little over 2% and

[00:15:14] Line share of that is going to the merchant bank and the acquirer bank

[00:15:18] So that's like whoever is issuing the credit card

[00:15:21] The payment rails are typically only getting around

[00:15:26] 0.12 to 0.14

[00:15:29] percent depending on the age interchange fees

[00:15:31] So just for context on like who's participating in that fee

[00:15:35] By the way, I couldn't remember who it was. I was trying to remember who the other vendor was

[00:15:41] That's another big car. No, that's the one because I had like karma in mind, but I like I know it's

[00:15:47] That's I don't want to they're the other player. Yeah. Yeah. I think they're privately held

[00:15:52] I think those that's they're not publicly listed but

[00:15:56] And it's funny though just a quick note on the credit card fees is that

[00:16:01] There tends to be a lot of focus on visa and mastercard when you see that in the news and not on the actual banks

[00:16:07] It's kind of funny that even the merchants I feel like oftentimes are not fully aware how these fees work

[00:16:14] Because that's how I mean my perception every time I see an article

[00:16:18] It seems to always kind of feature visa and mastercard

[00:16:21] In all the actual banks but to give more context here

[00:16:24] The merchant fees are in the 5 to 6% range for buying out pay later

[00:16:30] So these are massive fees. Oh, yeah

[00:16:32] 5 to 6%

[00:16:34] Whoa

[00:16:35] 5 to 6 the reasoning obviously is that I think

[00:16:38] A lot of the users and I'll dig into the new york fed survey

[00:16:41] But a lot of users that are using this

[00:16:44] May not be able to get a credit card for example or may just have trouble getting access to credit

[00:16:51] So having the buy now pay later gives them the opportunity to make a sale that they would otherwise not be able to make

[00:16:59] Cheese, okay. So I think yeah

[00:17:01] So I think that's the reasoning why because if you're you know, people might be wondering like if you're a merchant

[00:17:06] Like why the hell would you like offer this payment option?

[00:17:09] Clearly they're gaining value clearly. They know that it's worthwhile if they're offering it

[00:17:14] They also make interest on loans. So these are loans offered by buy now pay later services typically in longer term

[00:17:21] I know a company like a firm holdings has like actually in their slight deck kind of a

[00:17:27] Section with all their services and then one excluding peloton financing

[00:17:32] So it gives you it gives you an idea how big like peloton is in terms of their business

[00:17:38] They also have late fees

[00:17:40] Not all of them

[00:17:41] But if users some of them if users don't pay their follower

[00:17:44] Installment on time they can be charged late fees and depending on the service

[00:17:48] They might also have service fees that apply

[00:17:51] So they do make money and I guess the last way is they will also

[00:17:56] Package their loans out to a company that will buy them

[00:18:00] The servicing will still come from a firm holdings in this

[00:18:04] Circumstance, but they'll also make money on selling those loans out to third-party businesses

[00:18:10] it's always

[00:18:13] The types of services that pray on

[00:18:17] What this survey is calling financially fragile people that that that keep them in a cycle of being

[00:18:26] financially fragile and

[00:18:28] It's what it's really easy to just be like okay

[00:18:31] These these companies are scumbags and that kind of thing

[00:18:35] But the thing that people and I'm not here to debate that point

[00:18:39] I think that for the most part a lot of these what I'll call predatory services are scumbags

[00:18:45] Especially like payday loan type situations. I think that that's very predatory

[00:18:51] But with these types of things and these types of high fees

[00:18:54] The one thing we have to remember is what this types of capitalism is

[00:18:58] They need to be compensated for

[00:19:01] credit risk

[00:19:02] Like that's how the system works

[00:19:06] like

[00:19:07] It just is what it is you have to be compensated for

[00:19:11] Increased credit risk like the business like that's just how these businesses have to function

[00:19:17] And that's how credit has worked

[00:19:19] Since the dawn of time in terms of assessing credit risk and issuing

[00:19:24] compensation in terms of a rate for

[00:19:28] How credit worthy or how risky that that loan is

[00:19:31] And so you're just seeing that play out into different types of consumer applications

[00:19:37] In this case of buy now pay later

[00:19:39] Yeah, and what they do people might wonder like okay well if you know, they're not landing and I'll describe what they identified in the survey as

[00:19:48] financially fragile, but

[00:19:49] If companies are not landing to these people, but then buy now pay later is like why is there like why are they doing so?

[00:19:57] Well, their argument here is that they actually do the underwrite the loans

[00:20:01] Or these installments on kind of a case by case basis on the loan by loan basis based on what they're actually purchasing

[00:20:09] So that's how they say and obviously they use algorithms and AI to

[00:20:14] You know put in a bunch of different variables to see how likely someone is to pay back that loan or not

[00:20:20] But you know, it's an interesting point and clearly to me

[00:20:24] I think there is a risk here for buy now pay later loans because first of all it doesn't show up on credit burrows

[00:20:31] That's a really sketchy stat. Isn't it?

[00:20:34] Yeah, yeah, so that is one thing and people actually in the survey

[00:20:37] That's one thing they found is people were using it thinking they were building their credit

[00:20:42] Which that's one of the things that new york fed surveys said like clearly there's a misunderstanding without these services work

[00:20:48] Because that's actually not how it works

[00:20:51] So I think there is definitely some more education

[00:20:53] But also, you know, you do wonder if these kind of services get too big and there's still not much regulation around them

[00:21:00] You know

[00:21:01] I don't want to be alarmist but this could cause some problems down the line, especially because the

[00:21:08] Right off rates so the delinquency rates are definitely, you know, they're not low

[00:21:12] I mean, they're not like crazy high or anything

[00:21:14] But they're definitely in line with credit card defaults rate right now

[00:21:19] But again, depending how the economy goes it'll be interesting how that kind of trends going forward

[00:21:24] But the survey to get back to it. It was done on a thousand household with 200 of them reporting using by an out pay later

[00:21:32] They identified two types of respondent

[00:21:35] Financially fragile, which are those that have one of the filing criteria credit score below 620

[00:21:41] Have been declined for a credit card application in the past year

[00:21:45] Have fallen behind 30 or more days on a loan payment in the last year

[00:21:49] And the rest are put in the financially stable category

[00:21:53] That's a pretty wide range to be honest like a credit score of 620

[00:21:58] You know, let's just say a credit score of 630 is not like that. Good. Let's be honest

[00:22:05] I don't know what you think about that. This is like two categories. It's

[00:22:10] Definitely financially fragile and then

[00:22:13] What they're calling the rest as stable is certainly a scale

[00:22:18] That is not exactly not being investigated further. So I mean

[00:22:23] It is what it is. It's important to know that with the survey

[00:22:26] Yeah, and they had to define it some way. So I don't kind of criticize them for that

[00:22:30] They had to place the line somewhere and that's where they decided to do it

[00:22:34] And one of the key finding is that it's rare for users to use by now pay later a single time after trying it once

[00:22:41] Regardless of the category they've fallen whether it's financially stable or financially fragile

[00:22:46] They found key differences between the two types of users though for the users that have used it at least once in the last year

[00:22:54] So clearly out of the thousand respondents

[00:22:57] The it would be the 200 actually reporting using it at least once in the last year

[00:23:03] So this is the data that I'll be talking about right here

[00:23:06] So financially fragile households are more likely to be repeat user with 60% using it five times or more in the last year

[00:23:14] That's compared to 18% for financially stable household who have used it only once so

[00:23:21] They're less likely to be repeating users if they're financially stable

[00:23:26] One of the key findings also found that the financially fragile households were more likely to use by now pay later for smaller

[00:23:34] Everyday purchases whereas stable households were more likely to use it for larger purchases

[00:23:40] With the main goal of avoiding paying interests

[00:23:43] So for example, you know

[00:23:46] Not wanting to take a loan out just doing the installments

[00:23:49] And they're not paying any interest because they're doing the installments on time four installments

[00:23:54] They're done so they're using it as a way to save money. So that's a pretty stark difference

[00:23:59] The financially fragile household are more likely to make small and medium purchases that they could otherwise

[00:24:05] Not afford

[00:24:06] And the biggest barrier to higher adoption for by now pay later is using it for the first time

[00:24:13] So those are the key findings that they found. So it's a bit alarming. I'll be honest because

[00:24:19] That's the underlying data and obviously a thousand people survey 200 using it

[00:24:24] It's not a big samples relatively small, but it does paint a picture that

[00:24:30] You know people who are less fortunate are using this more and more just to make ends meet

[00:24:36] Whereas people that you know are more stable are just using it as an additional tool to

[00:24:42] Kind of make purchases that they could make

[00:24:45] Any ways using other forms of payments, but they're just using it as a tool

[00:24:50] I don't know what your kind of takeaway is from that. I just find it

[00:24:54] funny how

[00:24:55] It's always the

[00:24:58] types of purchases where it's like

[00:25:01] I shouldn't I certainly should not finance this item

[00:25:06] Is is when I see

[00:25:08] The by now pay later button show up on my checkout. It's like it seems to be like

[00:25:14] For me and I see that badge. I'm always just like I don't really need this, do I?

[00:25:19] This is this is a reminder

[00:25:21] Yeah, this is something I really don't need

[00:25:24] That's that should be my new rule. I see a firm pop up on the screen

[00:25:28] Um, and I would have to wait 24 hours before I buy it

[00:25:31] No, I mean it certainly is I think you and I have referred to it as buy now worry later in the past

[00:25:37] I think you coin you coined that turn here on the pod. I I couldn't agree more

[00:25:41] That's my sentiment towards it

[00:25:43] But uh, I think it's crazy that it's

[00:25:46] It's not connecting back to credit bureaus as well. So that like yeah

[00:25:51] household debt number doesn't even include some things like this where

[00:25:55] someone could be

[00:25:56] financing a bunch of junk over the next

[00:25:59] three payments that they have do

[00:26:02] Yeah, and it's still like by now pay later is still relatively new as well

[00:26:07] So I think and that's one thing they mentioned a survey is they saw a stark change between

[00:26:11] 2021 and kind of recently on the usage just because people are getting more used to it

[00:26:16] So that's something that'll be interesting revisiting down the line as there's more and more data and people

[00:26:21] May feel more comfortable using it. Maybe I'll finish for financially fragile households. Hopefully

[00:26:27] You know people kind of use that more as a last resort. I think it's certainly better than you know, payday loans like you mentioned

[00:26:35] So it's um, it's a better option than that but clearly I think

[00:26:39] You know people should be careful about using it too much because I think they can really get into a kind of vicious circle

[00:26:46] If you're constantly financing everyday expenses

[00:26:50] You know, maybe a better discussion with yourself would be how can I make more money or how can I reduce my expenses to get out of that?

[00:26:58] Or do I really need this crap?

[00:27:01] That's what I ask myself. Well, I mean, yeah

[00:27:03] I am so anti stuff

[00:27:06] Uh, that's my that's my thing

[00:27:09] Yeah, I mean, I think some grocery stores in the us even offer this

[00:27:14] How like I at my checkout like in person

[00:27:17] Yeah, you can you know where you can buy like your groceries online get it delivered and stuff

[00:27:22] I think I'd have to validate that but that's what I've I've heard anecdotally

[00:27:26] So that's why I think it becomes a little more dangerous and necessity because then it's necessities coming in. Yeah

[00:27:34] Which you're just using it to try to make ends meet

[00:27:37] But I think for most people and really financially illiterate

[00:27:40] Folks could use that and then go spend it on something else because they're like, uh, I got I got this money

[00:27:46] And I don't have to I'm financing my groceries. They're not due for another month

[00:27:51] Yeah, yeah, so well, I have to see but no, I think it was an interesting

[00:27:56] article like I said, I'll link into the show notes for those interested in these kind of studies the

[00:28:01] Federal reserves in the u.s. The different ones like all have kind of areas they focus on

[00:28:06] And they do like I'll give them credit

[00:28:08] They do very good work and sometimes you can find some really interesting studies

[00:28:12] Unfortunately in Canada we tend to not have that same kind of data

[00:28:16] But I think it's safe to say that it's probably similar in Canada in terms of usage. I suspect. Yeah

[00:28:24] Let me talk about norbert lu

[00:28:28] next topic of the day norbert lu

[00:28:31] when

[00:28:32] talking about him

[00:28:34] Famous investor joel greenblatt said to this day quote to this day

[00:28:39] I hand out the first three write-ups he wrote on the value investor club forum to my students at columbia

[00:28:46] To show them what a brilliant concise straightforward and clear investment thesis should look like

[00:28:52] That's high praise if you google norbert lu you won't find pictures of him

[00:28:57] You won't find interviews except for one that was done in 2011 and you won't find any investor letters lu

[00:29:04] first discover discovered

[00:29:06] And invested in the home builder

[00:29:09] nvr, which is a

[00:29:12] Well-known home builder in the u.s. In 1997 while managing his personal money along with his mother's retirement

[00:29:20] Allegedly at the time of the first purchase nvr was trading for around 23 bucks share

[00:29:26] nvr is one of those compounders that have never split the stock and it trades for like

[00:29:31] Seven and a half thousand dollars us today

[00:29:34] So that's quite the return quote here from norbert in that interview

[00:29:39] You actually want the companies that have bountiful bountiful

[00:29:44] re-investment opportunities

[00:29:46] That they don't buy back any shares and quote

[00:29:49] I thought that was a pretty interesting take. I mean, of course in capital allocation you want

[00:29:54] investment managers to have a

[00:29:56] wide decision tree of options and

[00:30:00] Be good at making

[00:30:02] said decisions in the decision tree

[00:30:05] And I thought that was really interesting because in my large position constellation software, they don't buy back any stock

[00:30:11] I don't think that they have any plans to buy back any stock

[00:30:14] They don't increase the dividend because they can compound capital faster at doing acquisitions in mna for their investors

[00:30:22] so they believe that it is

[00:30:25] a bad

[00:30:26] Being a bad stewards of capital to do anything else but that

[00:30:29] Allocation and it's worked out pretty well

[00:30:33] And so I think that that's a really interesting take and one that like logically

[00:30:38] Is really easy to understand. It's like if I can achieve extremely high roic

[00:30:44] far beyond any other

[00:30:46] type of allocation strategy

[00:30:48] I probably shouldn't be buying back stock probably shouldn't be paying the dividend lou

[00:30:52] norbert applied to the club

[00:30:54] A value investors club with a write-up on nvr with the pseudonym

[00:30:59] charlie 479 his application was accepted and his initial write-up was on nvr and two other investments that both

[00:31:07] Smoked the market while the funds are not publicly disclosed

[00:31:11] We can you know parse them together some stuff because he has to file a 13f while managing his personal money

[00:31:18] from 94 to 2003

[00:31:21] Lou calculated he had generated an annual cagger of 38 and a half percent

[00:31:26] Not bad quote. I always tell students in business school. They'd be better off

[00:31:32] When they'd got out of business school to have a punch card with only 20 punches on it

[00:31:37] And every time they made an investment decision

[00:31:39] They used up one of their punches because they aren't going to get 20 great ideas in their lifetime

[00:31:45] you're gonna get four

[00:31:46] Three five or seven and you can get rich off five or three or seven

[00:31:52] But what you can't get rich doing is trying to get one every day end quote

[00:31:58] Warren Buffett

[00:32:00] So the punch card idea you're familiar with this this idea, right? It's like the train punch ticket

[00:32:06] Okay, good

[00:32:08] So limit amount of uh of shots to take basically

[00:32:12] Right it's a way to think about increasing your bar for quality your hurdle rate

[00:32:18] It's like if I only have 20 decisions I can possibly make

[00:32:22] I gotta have a lot of conviction and I can't be messing around with stuff if I you know that

[00:32:27] I might be thinking about if I had thousands of punch cards to make and I think that's a really useful framework

[00:32:33] And so inspired by that Warren Buffett concept being in the value investor community

[00:32:37] Lou Norbert started punch card capital, which is

[00:32:41] A bad ass

[00:32:43] name for a asset management firm 2004 to his public interview in 2011 loose fund return 14 and a half percent

[00:32:51] Net of fees now that doesn't seem crazy

[00:32:54] But during that time the s&p return just 2% a year if you

[00:33:00] category it out because

[00:33:03] You ever heard of the great financial crisis?

[00:33:05] And you know post waxing of stocks in in in the early 2000s

[00:33:11] It was not a good stretch to own stocks people people didn't create a life changing amount of wealth

[00:33:17] You know owning the s&p during that during that time frame

[00:33:21] Since that interview the portfolio has been mostly Berkshire Hathaway a few financial stocks you're in there today

[00:33:27] The portfolio is half Berkshire a quarter ally financial

[00:33:33] roughly another quarter Winnebago

[00:33:35] and

[00:33:36] Smith and Wesson brands likes value likes Buffett that's for sure

[00:33:41] I really wonder if in that personal account he ever sold nvr because

[00:33:45] That stock has been a freaking monster that home building stock

[00:33:51] Yeah, that's that's kind of crazy. But I mean it just goes to show

[00:33:54] Like when you have a lot of conviction, I mean you don't have to take multiple bets, right?

[00:33:59] I mean obviously you want to be diversified. I think I'll enter that with a caveat

[00:34:03] But just you know buying companies to buy companies. I think you have to

[00:34:08] Make sure that you buy, you know the right kind of companies

[00:34:12] I mean, I've made the mistake in the past too. Sometimes I should have had more conviction

[00:34:16] But I think it that's a good reminder. Yeah, no

[00:34:18] I mean it's it's obviously easier said than done to have you know a mass amount of conviction

[00:34:23] And hold on to it through the the ups and downs

[00:34:26] I mean you look at a company like nvr

[00:34:28] The home builder and it's cagger that

[00:34:32] 24% of the last 35 years like that makes

[00:34:37] Stupid wealth changing money, you know, you get like a

[00:34:41] 150 bagger after that math total return wise after you know since the IPO

[00:34:46] But that is a long ass time

[00:34:49] And the stock has not been fun to own the whole time, right?

[00:34:53] Like that's the thing that people forget about these monster

[00:34:56] 100 bagger type names that are in the chris meyer hundred baggers book

[00:35:01] They've been actually really unfun to own for a huge long periods of time

[00:35:07] Sometimes close to decades

[00:35:09] And so I think there's lots of

[00:35:11] takeaways when you look at a name like this and end the story behind the the amount of money that was made by by holding it and being can

[00:35:18] Doing actual deep research and I like wrote the thesis

[00:35:22] Yeah, no exactly and on that theme. I think I'm gonna I had a segment inspired by a uh a listener

[00:35:29] For uh to talk about stop losses

[00:35:32] But I think I'm gonna keep that for next week and this is

[00:35:36] I'm gonna throw you a curveball because something just came out that I think is noteworthy and I'll share my screen

[00:35:44] And uh, whoa

[00:35:48] So do you want to take a guess what happened?

[00:35:50] So for those uh watching on join tci you'll see but for those who are not watching essentially i'm showing braiden

[00:35:57] Just uh the canopy growth corporation. So weed.to one of the biggest cannabis producers in canada the stock is up

[00:36:04] 51 percent right now and it's not just this one

[00:36:08] It's all marijuana stocks in canada or your us because the us is apparently going to move to

[00:36:14] Reclassify marijuana from a schedule one drug to a schedule three

[00:36:19] You know, I I know a little bit about those schedule

[00:36:22] I think schedule one includes like stuff like cocaine like really hard drugs that have like no medical benefit

[00:36:28] And schedule three is really on the lower end where I mean, I think a lot of people are probably

[00:36:34] That they're going to be moving to legalizing at some point in the future based on that or at least decriminalizing on a federal level

[00:36:42] But I mean I figure it. I know it's kind of off the cuff

[00:36:45] But I you don't see these massive moves very often

[00:36:49] I figure it was kind of a war wild because

[00:36:52] Obviously, I think there's probably a lot of our listeners that own canopy or you know have home marijuana stocks at some point in the past

[00:37:00] Well, that's actually a really, you know investing aside a good

[00:37:05] proposed change. I mean it's it's just so outdated to be

[00:37:11] having it scheduled with like heavy narcotics and like extremely, you know like

[00:37:18] Uh brutal risky deadly drugs to be in the same mix with with with cannabis

[00:37:25] So I think that that makes complete sense. I think a lot of people

[00:37:28] Have are still going to be waiting for that kind of full-scale legalization. It just it just felt like the us is

[00:37:36] Moved way slower than I think a lot of people would have expected on this stuff

[00:37:40] And yeah, exactly. Yeah. Yeah me too and I mean I think the and just so people understand a little bit

[00:37:46] So in the u.s. You have this kind of two-tier system

[00:37:49] So it was like essentially, you know, it still is I guess until this has changed

[00:37:53] But it was classified as hard as like other hard drugs

[00:37:58] And then you had it on the state levels where a lot of states were starting to make it legal

[00:38:02] So I think at some point obviously I think the federal government will have to change its stance

[00:38:08] Probably at least decriminalize it in terms of I would caution people to get too excited

[00:38:14] Because obviously the market is

[00:38:17] Quite excited right now if their, uh, you know canopy is just like, you know, it's basically increasing second by second as we have this

[00:38:25] Showing but I think it doesn't mean that these companies will necessarily be, you know

[00:38:30] profitable or good companies going forward obviously it's good news for these companies has

[00:38:35] You know down the line it probably will open some opportunities

[00:38:39] But I think they'll be faced with similar problems

[00:38:42] Then they were faced in canada that you know it comes down to being a commodity

[00:38:46] And you know, I've said it time and time again. I think 10 15 years down the line

[00:38:51] I think you'll have a few large companies that will be making money selling marijuana

[00:38:57] But they will do so on scale. They'll have you know small margin but

[00:39:03] Scale and that will enable them to actually be quite good companies

[00:39:07] But I think we're a far cry from that. I think like, you know, there's a reason I've said 10 to 15 years because I think that's going to be far

[00:39:14] Far down the line

[00:39:16] Yeah, I I mean

[00:39:17] It's like one of these things where it's like, okay cool. It's still a brutal business like it's still

[00:39:22] It's still just a terrible business. It's so commoditized so difficult

[00:39:28] Uh, you know, it's one of those things where I

[00:39:31] I look at the largest

[00:39:34] The largest so the the comp I think

[00:39:37] I always think of

[00:39:39] is

[00:39:40] Solar panel manufacturers. By the way, be doing that on a different platform. Uh, if you're gonna be sharing it on

[00:39:47] Yeah

[00:39:49] Oh, yeah, just because it's like it's bigger to see it. That's the main reason it's just the numbers pop more

[00:39:55] That's got it. Got it. Don't be a

[00:39:59] We use finch out around here, baby is much better. Yeah, it's much better. Yeah, so

[00:40:04] Solar manufacturers solar panel manufacturers are

[00:40:11] In my mind a very similar comp because you had this very exciting industry, okay

[00:40:17] Very exciting. There's gonna be all this, you know, wide scale

[00:40:22] Global adoption of renewable power

[00:40:24] Solar is going to be a huge part of it and you have the largest solar

[00:40:30] manufacturers in the world

[00:40:32] A lot of them are public and a lot of them are just

[00:40:36] horrendous businesses and

[00:40:38] Terrible stocks because the margins are a joke

[00:40:41] The competition is immense. You have all these massive other different players

[00:40:48] And you have this race basically to zero

[00:40:51] you have

[00:40:53] A very deflationary product as well

[00:40:56] So I I always think of them like solar manufacturers where you had this extreme

[00:41:02] excitement extreme hype building into them and their stocks look a lot like cannabis stocks because

[00:41:08] The reality of that business is very terrible

[00:41:12] Like it's it's not great

[00:41:14] And I think that you you run out into a similar situation in similar product a similar compression and margin a similar increase in

[00:41:22] commoditization and

[00:41:24] In competition for what are both

[00:41:28] Exciting growth industries, right? You have these exciting growth industries and a bunch of terrible businesses in that basket

[00:41:35] Yeah, because like these businesses and let's be clear here. They're not, you know, exactly like

[00:41:41] A shining beacon of profitability

[00:41:43] So I have canopy growth here that you know, people can see they're losing tons of money

[00:41:48] Doesn't matter what you look at if you want to look at free cash flow

[00:41:51] I can guarantee you without looking that they're losing a bunch of money based on free cash flow as well

[00:41:56] So this is, you know, it's I'm not gonna lie like it's it's good news

[00:42:01] Like clearly it's not bad news for the these companies, but you know, it's not going to change their fortunes in

[00:42:08] You know in the next year and probably not in the next two three four five years

[00:42:13] Like it's gonna take time and hopefully they can survive until then to be able to capture the us markets

[00:42:19] Should it end up legal being legal on the federal basis, you know down the line?

[00:42:23] But I think it's just I think it's just a good reminder for people listening to the podcast and not get

[00:42:29] Too caught up with the hype like that's one of the reason why I wanted to chat with you more on the fly

[00:42:35] As this news came out as the stock is up 50 but be careful trying to chase the gains because these are

[00:42:41] Pretty horrible companies now

[00:42:44] And we have no problem like just telling you that it is they're not good

[00:42:48] Yeah, exactly like they're not I mean you want to own a money losing company that's been diluting share a whole lot then

[00:42:55] You know have at it because that's what these companies have been and then you know for canopy growth

[00:43:00] You kind of throw in the fiasco that was bio steel and going bankrupt and all that

[00:43:05] It's just a good reminder like you can see a big pop like, you know 50 percent like we saw today

[00:43:11] But just to be careful because I wouldn't be surprised if the stock goes down

[00:43:16] massively in the next like, you know three to six months just because there's a kind of momentarily

[00:43:23] Pop based on just a set of news that will probably not have any material impact for years down the line

[00:43:30] At least they're just not trading at 215 times sales like back in the day. No

[00:43:37] They went everyone liked the stock they were

[00:43:40] Uh, they didn't I don't think the people who were buying the stock were really excited about it

[00:43:43] Knew what price the sales even meant so

[00:43:46] Who's to say?

[00:43:48] All right, should we uh, that's the pod I think that yeah, that's it and you know see come back in next week

[00:43:55] I do have like I think you saw it like a pretty good segment on stop losses and

[00:44:00] And I think it was thomas that sent us a question. So sorry thomas couldn't get to it this week

[00:44:05] Uh, it wasn't expecting this but uh, I'll get to it next week

[00:44:09] Stop losses. I know mike. I haven't read your take, but I know my take

[00:44:14] I I can't stand using stop losses

[00:44:17] It's take one of those things where we'll wrap up the pod here in a sec

[00:44:20] But it's always really important when you're learning about investing you're watching youtube videos

[00:44:27] To match the game of the advice or hot takes that are coming out even from us

[00:44:33] On what game that you're playing because that's a very effective tool for

[00:44:40] Active traders who don't want to get wiped

[00:44:42] Who are day trading and like you know looking at screens all day

[00:44:46] Versus like us. We're buying really high quality companies and holding them for a long time if there's a big drawdown

[00:44:52] I might consider wanting to buy more instead of exiting and selling my position

[00:44:57] So just not to get into stop loss, but just check what game you're playing right because

[00:45:02] That's a really useful tool for a different game and it's a game you and I

[00:45:07] Play is very different. So just yeah, and next time you're making added some use it in the past

[00:45:13] But not I think I've used it twice in my investing career. So clearly it's not something I use very often

[00:45:19] I think it's uh something, you know

[00:45:22] Part of my tool kit that I can use but it's not something I use on a regular basis

[00:45:27] And I'll expand a bit more on that clearly for trading as a bunch of use cases like you just said

[00:45:34] If not, I think it can be a good tool if we go back to

[00:45:38] You know my tele-dog days when it was at all time high

[00:45:41] Well, I probably wish I would have in

[00:45:44] Put a stop loss on at least part of my profits and that's kind of the angle

[00:45:49] I look at it is when things are clearly like extremely overvalued

[00:45:53] That's kind of a tool but without going into I have a question for you

[00:45:58] Yeah, I go for you final question of the day

[00:46:01] Do you think

[00:46:04] Canopy growth

[00:46:06] Estimates forward estimates on revenue for

[00:46:10] 2026 I know estimates out multiple years is kind of bogus

[00:46:14] I know

[00:46:16] But we aggregate them on finchat. I think they're really useful for one year out

[00:46:19] But moving forward to 2026. Do you think total revenues are higher or lower?

[00:46:27] For consensus estimates out to 2026

[00:46:30] Ah, yeah, I'm looking at them right now

[00:46:34] Hold on. Let me pull them up and tell you the answer

[00:46:38] Oh, you cheated

[00:46:40] Well, no, no, I mean it's uh, I mean I can still say what I if I think you think okay, right or not

[00:46:46] Yeah, I thought that was a question but no my question was which one like what do you think analysts would have had but yeah

[00:46:52] They did. Oh, yeah, it's lower

[00:46:55] It they're they're as they're guiding for 321 million in revenues in 2026 estimates

[00:47:00] Of course, it's just estimates for what you will and trailing 12 months. They've done 362

[00:47:06] Yeah, I think it could be higher than what estimates are saying

[00:47:10] Uh, mainly because there's more consolidation in this space

[00:47:12] I'm also factoring it that there's I think, you know, it's hard to get some real good data on that

[00:47:18] But I think there's more and more people shifting from the, you know

[00:47:22] Black and gray market to the legal market which will benefit these companies

[00:47:26] And I think that's been a slow trickle but the data I've seen and again

[00:47:30] It's still, you know, you're asking people kind of sensitive information

[00:47:34] So you have to take it with a grain of salt

[00:47:37] But I think that part has been happening very gradually. I think it'll continue happening

[00:47:42] So I think it could be slightly higher than what estimates are

[00:47:46] Predicting in terms of the coming years whether they're profitable or not

[00:47:50] I would probably say that they will likely not be profitable, but revenues will increase. Yeah

[00:47:56] Gotcha. Yeah, I'm with you. It seems pretty bearish. I mean you'd get

[00:48:01] Probably lose a lot of money if that if that plays out of estimates are right

[00:48:05] I'm not saying it's going to be a good investment. So if they'll get me wrong

[00:48:08] I'm just saying that it

[00:48:10] You know, it's they've had a rough time and it's not been definitely

[00:48:14] Not been as good as analysts were predicting like four or five years ago

[00:48:18] But I think there might be a bit too bearish. But again, I even if I'm right

[00:48:23] I'm not necessarily thinking this will help perform the market

[00:48:27] And somehow in that same mix operating income goes from very negative today to a lot less negative with revenues down

[00:48:35] I don't see that happening really personally, but yeah, exactly

[00:48:40] But you know, we're not analysts braiding inconsensus outside. Thanks for listening folks. We really appreciate

[00:48:47] You tuning into the pod

[00:48:49] We are here Mondays and Thursdays you get me on the pod here Mondays and Thursdays with

[00:48:55] One of the dance the Dan from the real estate show was on here last week

[00:48:59] Filling it for me and then Dan Kent from stock trades. Yay

[00:49:04] Frequence on the pod every single week as well. You guys must have your

[00:49:09] slate of stuff to talk about absolutely giant packed we're recording this at

[00:49:15] Amazon's about to report we had tons of

[00:49:18] Earnings last week. So make sure you guys are tuning into those Thursday shows because this is

[00:49:23] Q1 earning season in full

[00:49:26] Full swing right now

[00:49:28] Yeah, and you don't don't worry. All I do is screen share finch at so

[00:49:33] Just yeah, this was literally just for really getting that big number

[00:49:39] Because I don't like aside from that it's not useful at all compared to finch at so finch

[00:49:44] That's the goaded platform. That's a good little handoff for me

[00:49:48] Finch at launched finch at v3

[00:49:51] v3 is

[00:49:53] So freaking good at summarizing earnings calls

[00:49:56] So or transcripts or like, you know, give me five takeaways from the google call last week

[00:50:02] The earnings report came out, you know wide wire investors so excited about it. Give me five points. Give me 10 points

[00:50:08] Give me whatever you want summarize it. It's so freaking good at that now

[00:50:12] So go ahead and give that a try you can you can use it for free for a certain amount of prompts

[00:50:16] So you can you can pay and get more. So that's finch at dot i o

[00:50:21] Not any of those other

[00:50:23] Ripoffs trying to come after us. It is finch at dot i o

[00:50:28] Oh, there are some

[00:50:29] Oh, yeah, I'm not gonna give the the domains out because

[00:50:34] Because screw those guys but uh finch at dot i o

[00:50:39] I I think I could have to put it back in the name of the company here because we got these scammers coming after us

[00:50:44] So yeah, it's good times

[00:50:45] Hey, you know, you know, you're doing well if you've got scammers trying to you know to go after you

[00:50:51] So I think that's a pretty good proxy for success. I'll take that. All right. We'll see in a few days guys. Take care. Bye

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