Chit Chat Stocks - Top 5 Businesses of All Time - Q1 Roundtable with Brad & Ian

Episode Date: April 13, 2022

Bonus Episode! This week Ian and Brad join us for the Q1 Roundtable. About once a quarter we want to share some of our biggest stories and opinions from the financial markets. In this episode, Brett, Brad, Ryan, and Ian discuss the top five businesses of all time. Enjoy the show! Subscribe to 7investing with the code "Money" and get $100 off: https://7investing.com/subscribe/aff/4/ Want updates on future shows and projects? Follow us on Twitter: https://twitter.com/chitchatmoney Interested in more of Ian's work? Follow him on Twitter: https://twitter.com/IanGrayLive  Interested in more of Brad’s work? Find his Substack: https://stockmarketnerd.substack.com/ Rather watch us on video? Subscribe to our YouTube channel: https://www.youtube.com/channel/UCG5Ni-SI-jyrEsoNUhqftNQ  Contact us: [e-mail]  Timestamps Boeing & Airbus | (15:30) Salesforce | (29:47) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. On this show, host Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or recommendation. Now, please enjoy this episode. Welcome to Chit Chat Money. This is our quarterly roundtable episode where we have on Brad Freeman and Ian Gray. We usually come in with no script, but today we've got the five best businesses of

all time. We each have our own ranking, so we're going to go through those. I imagine there'll be a bit of overlap, but Brad, Ian, it's now been three months since we last spoke. So how are you guys? How have the portfolios been holding up? Not great. How about you? Yeah, it's a tough time, but I don't know. Ian launched Merlin. Oh yeah. Yep. We've got Merlin on the app store now. So check it out. M-E-R-L-Y-N, Merlin. So that's been, that's been fun. And it's been, it's been a good thing to keep my mind off the market too, in the last couple of months. But I actually enjoy times like this in the market too, because it makes it more interesting, I think. And you can find some good deals every once in a while and keeps you on your toes to have a little volatility like this.

And Brad, you have been working on the newsletter pretty heavily, I've seen. What's the last report you did? Was it Upstart? Yeah, the last deep dive was Upstart. Since then, I've done, well, I started positions in PayPal and Match Group. So I kind of posted like not a deep dive but a three or four page full summary and an overview of the risks and everything like that but the last deep dive was upstart uh working on paypal now and then well i'm basically turning both of those match group and paypal write-ups into deep dives and then um yeah go from there all right what do we want to get into it who wants to go first i have a question for ryan first and what was the uh what was the number one thing you learned in

development process of Merlin. Did it take longer than you were expecting? What were some of the big takeaways? Yeah, I'd say it probably did take a little longer than I was expecting. I never built something like that before. But I'd say the big takeaway was just how customizable every single aspect of something is. When you're building something from the ground up with software, there's really endless possibilities, which is a good thing on the one hand, because you can really make it however you want to make it. But on the other hand, there's also an endless decision tree right that if you do this then there's all these other possibilities that can happen and so you have to very clearly define what happens in each of those possibilities and

try and create good fixes and good solutions even when you think everything makes sense or this is how the users are going to go through the app um sometimes there's edge cases and trying to figure out all of those so there's just it was it really is a an open sandbox and um i don't know that was that was probably one of the big takeaways for me curling with the broom right were there any companies that you relied on i know one being twilio uh were there any other ones that you kind of interfaced with that maybe you wouldn't have been able to see or get some experience with other than that yeah we used quite a few companies so we had twilio which um works with our kind of video platform um we use stripe for our payments we used wix for um for our website and our landing

page we're heavily involved with apple because we're launched on the app store and they have a very um set environment to use in a particular coding language that they use and so um those are probably the four big ones but uh yeah lots of interactions with companies that that we've talked about before what are your thoughts on stripe is it everything it's cracked up to me Yes, I would say yes and no. So yes, it's it is a really great tool. And I think clearly the best tool out there, at least in our opinion, when we were choosing a tool for payments, it made a lot of sense. I will say that there's, I think, some assumptions that sometimes those tools are easier to use than they actually are. Right. It's just, it's still, there's still work to be done. There's no out of the box solution that just works perfectly. And they don't want it to be like that either, because they want you to be able to customize things and make it how you want it. And so, um, even when you're using solutions like that, it's still, still takes some time and effort to get it how you want it in your, in your platform, but it's been working well for us so far.

All right. Let's, uh, let's dig into best businesses who wants to kick things off. Well, let me, let me say that what we, the question was, it was just, what are the five best businesses? And it's pretty open-ended of all time of all time. Well, I guess they, if they're not, if they're in the top five, they probably should be around today. Uh, if they didn't make it, what, what'd you say Brad?

This is just a totally objective process that, that we were playing out here. And seriously, it is pretty subjective. So we wanted to make it bag just for everyone to have their own little definition, their own little arguments. I don't know who wants to go first, take the big leap here, Brad, maybe you brag. Cause you kind of spoiled it beforehand. I think we might have to go. Yeah. So, so for three of them, I'm kind of, I'm, I'm just,

I'm using what we can refer to as, as a cop out with it. Yeah. Go ahead. Wait, wait, wait. Did you rank them in order? Yes, I did. But they're kind of in two groups. So there's like a group of three, and then there's a group of two behind them. Start with your worst, your lower ranked. Okay, well, the lowest ranked ones are like the dark horses. Well, not really a dark horse.

You can't call these companies dark horses, but not off the top of your head would think of it. So the criteria that I thought of for this was, which company has been able to grow into a juggernaut, a sustainable compounder, without just having to pour a lot of money into marketing expenses? Which company has just been able to organically become a gigantic presence in a market without doing what we see with companies marketing on TV every single day? So not to upset two of our hosts, but I am going with Tesla for number five for not the most compelling stock in the world, because that's a completely different argument. But in terms of the most compelling automaker in the world, just the precipitous growth that they've had and the lead that I think that they currently have in the EV market and the fact that they have just spent so little money because they have this cult founder who can just market for them on Twitter. That really has just created a unique environment

that I've sat out on personally as an investor over the last several years since I've started and sat out to my detriment and demise. So giving the nod to Tesla, even though I know it's probably not a popular take on here, but- Brett's cringing over here. You can't deny the growth. And that is, Elon's Twitter is quite the marketing advantage. Yeah. yeah and i mean along those lines i you i you i think maybe in 30 or 40 years we and this is this is like way long shot and and 95 chance it doesn't come to fruition but barstool and portnoy and and the polarization that they bring to the table and the massive cult following they have on social

media could turn into kind of like a sports entertainment version of that but i'm not ready to call yeah but they're not on the top that's not that's not your other one is it no no no no know we would have started out with some some wild cards there but i mean you can make an argument that could be the next espn i mean i don't think that's yeah yeah um but number four same similar criteria similar methodology for picking out a company is costco because they've they've turned into this an incredible cult like company for for my parents and i'm sure for a lot of your parents and now for me as well just passing the torch along from generation to generation hunting for these amazing deals and not only that but they're they're really

seamless ability to turn every single popular product they have on their shelves into Kirkland and into a private label. Margin Juicing Endeavor really just makes those four walls that they have even more valuable and even more lucrative. And again, they've just grown into this gigantic firm with very little external marketing, and it's something that I admire. So just along that kind of general framework of Criteria, Tesla, and Costco, two very similar companies, obviously, almost the same, I guess, but the other three are a lot more boring. So, um, I mean, going with the mega cap technology companies and, and picking in this case, the three cloud providers, I'm going to go with Microsoft and Amazon and Google. Um, very, very honorable mention to Facebook,

which is actually the one that I own out of the four. Um, but I don't think it's, it's quite as, um, quite as, as proven, especially with all this money they're spending on the better verse. So just giving the nod to those, those three other more established companies and all the, the the uh i don't even know how to say what i'm saying but all the projects that they have going on in the side burner i mean um google with with not a side project is you can't call youtube a side project but youtube and and waymo and google maps and all these amazing things that they have on the side in addition um to google search so not ranking one ahead of the other although i get actually yeah i will because it's more fun that way so i'll go um let's go microsoft give

them the edge with linkedin and xbox and and amazon a very very close second and then google uh, third place, um, Microsoft one, Microsoft best business, best business. I think I could hear that argument. I mean, yeah, yeah. I mean, not, not only, yeah, yeah. Well, I'll, I'll leave it there because, because I, because I've been rambling and also because if you asked me again in two minutes, um, and, and their listeners didn't hear my response, I probably would have said Amazon first and then Microsoft second. So they're so close and they're, and they're such incredible companies. Um, and, and yeah, so, so picking those three to be boring and safe and then Costco and Tesla as the two large caps that aren't always, I mean, pretty much never

considered in the same light as those three. I want to pick on your honorable mention here because this was also an honorable mention for myself. Facebook definitely has characteristics of what I would want, what I would think of as the best possible business model, user-generated content and a network effect facebook basically exhibits those better than anyone else youtube maybe but i also think in order to be a best business you have to not be and this is this is kind of like inevitable but you have to be on the regulator's side they they you can't want people to hope you can't it can't be schadenfreude is that what it is where they They're hoping you fail.

Well, I have one in here that they've been hoping. You might get it, Ryan, easily. They're hoping to fail for 50 years. The thing is, I know, but it just makes – that was the big thing for me was the regulatory hiccup. It's just it prohibits them from doing a lot. I think industry durability also matters where like Microsoft, okay, yeah, they may have some threats from Google Docs and Google Sheets, but that's been a threat for a decade, but that type of stuff seems so permanent and maybe I'd be wrong looking back

20 years, but Facebook stuff is less a permanent part of society. If you got to get Brad, you probably know that pretty well. I would say it's the industry will be permanent. Social media will be permanent. Who knows who will be at the top? True. I guess that you can make a good argument there. Brad, you have something not, not it's, it's kind of changing the subject. So if you guys have anything to add, um, in addition to that, um, feel free to go first.

Ian, Ian, you've been in anything? Shaking your head? Well, I'll go back for a second, too, and then I'll let Brad change the topic. But I think just to go back to Tesla for a minute, I think that's one that we're probably not going to talk about again. I don't assume it's on either of your guys' lists. It's not on my list, but it's one that I think bears consideration just because it is pretty remarkable what they've done. And you can disagree about all sorts of things that Tesla's done, but there's lots of, we could debate all day about that type of stuff. But it's pretty remarkable to go from not manufacturing cars to being one of the first cars people think of when they're deciding to buy a new car in a matter of, you know, a decade and or, you know, a decade and a half or two decades. I think to be able to make that leap is something that's pretty, pretty remarkable. And I think I, you know, I didn't put it on my list of the best businesses, but I think it is one of the best, um, business stories of the last brands potentially, well, brands potentially.

And I think also one of the best business stories in the last number of years to show what truly is possible in this day and age where you can, um, like the access to capital, the ability to, um, manufacture both in the United States and abroad. there's just a lot of moving pieces that had to come together to make Tesla work and grow like it did and I think that's a good thing for business overall that a company like that was able to be started take on industry incumbents and now

whether it's justified or not it does have a significantly higher market cap than any of the other players in the industry so I think it is one of I think it deserves consideration all the competitors combined I will also add

the i wonder how long i will keep turning a blind eye to how much people love the brand i'll probably do it forever but i look around like we live in microsoft or live in microsoft we live in redmond might as well be called microsoft the uh we live in the redmond area and every car i see is a tesla and every single time i like i look at it i'm like well it's like it's like 20 it's like 20 which is high which is high for i saw three red model i passed three red model threes on the same street this morning and it just yeah how long am i gonna sit there and say like man you know this is a it's a fraud yeah but it's gonna disappear tomorrow the argument is that there's very few areas like this so is that looking at you know is chicago like that but you said i mean

You can definitely see the uptick in Teslas on the road, just like anecdotally. Yeah. Pretty much. I feel like anywhere I've been in the country. But back to the best businesses part, I think a best business is irregardless of execution. You know what I mean? Irregardless is not a word. Whatever.

Regardless of execution. Thank you. I thought it was a word. You had me fooled. It's regardless of execution. So is it like, I think it's like great. you know tesla's great execution and kind of like whatever they've called it even uh elon musk has called it a miracle almost with a bad business right like i do have a hard time putting

anything that capital intensive in the best businesses yeah i kind of think like capital intensity is like a headwind but i mean sometimes it's a moat i mean you know with the cloud stuff it's kind of been a moat cox panoramic wi-fi includes advanced security to help protect all your connected devices you'll get real-time alerts oh like this one so you don't have to worry about malware or when your kid downloads a song from a shady link and now all your computer can play is red color red color where are you all blocked thanks to advanced security included with cox panoramic wi-fi advanced security must be enabled in the panoramic wi-fi app restriction supply yeah i don't know brad did you have something to add yet another another topic

just i i wanted to just throw some love i i wanted to i almost put airbus or boeing kind of in that in that discussion just because of the the really long term uh or the really large global supply constrained duopoly um so wanted to throw that out there as well that that was another um kind of piece of the puzzle that i was looking at um but but i i i wanted to go with marketing but just with the idea of how subjective this is and how and how yeah how subjective this is and i think that you can define it however you want and that also goes i would say either i guess i'm not as familiar with airbus but i would say boeing's in the too big to fail category or maybe not too big but too important to the country in which it resides to fail yeah but also negligent to place

in my top five and i say that as a shareholder with tough love i mean the the stuff that they've us through the last two years kind of precluded them from that top five list but um the the market positioning they have is very uniquely compelling yeah all right who wants to go next uh one of us yeah i'll go um so coming in at number five uh it is not unique now it is costco so brad already mentioned it but i think i mean everyone are people always talk about this and i think everyone understands the model but the idea of being the low-cost provider and charging for access to that is just a really good model and when you it's one of those companies that when you go to the store you can just kind of feel like it's a good business you like every operation

is so streamlined within the store it's impossible to compete with yeah the employees are happy they're well-paid i mean the stuff they're really selling stuff at cost and they have the scale so it's impossible it's it's no one can i mean not even walmart because walmart's not gonna have a subscription service for in-store anytime soon like no one can compete with them on cost yeah so they they come in at number five um and i would say that is nope scratch that i was gonna say that was only like the physical goods company that i own like i thought most other ones were digital but that just isn't true. So I've got a few more that are physical goods. But number four, and I guess you'd call this half digital,

half physical goods is Apple. I know Ian. Ian Kip, that could be on Ian's list. Probably likes that one. They struck gold. The iPhone is probably the greatest product of all time. Actually, it is the greatest product of all time. I think we can say that with confidence. It's one of those where you look around whenever you're in public and you just

see everyone staring down at their phones and you're like, why don't I own Apple? And it's, I mean, it's, I think Scott Galloway called it this, but I would say it's the most valuable real estate in the world. They call it, well, he referred to the home bar or yeah, the little bar in the bottom, but I would say the home screen of the iPhone is the most valuable real estate in the world. I don't need to go to much longer on them. The third company, and this is the one I think i was most excited to add to this list is standard oil uh still we could now we can whether it exists today or not it exists in pieces but it's still there it exists all right um and so i i'll kind of go i guess for anyone that doesn't like know a ton of the

history of standard oil to kind of talk about some of the advantages part of it was that they were just sort of not to discredit big big uh john d but he i think it was advantageous timing or just beneficial timing um being as early to the refining business as he was uh so they were able to reach pretty much the like the highest scale the quickest and because of that they were able to get the railroad uh discounts whether or not that was legal or not they were able to get the railroad discounts because the volume they were putting through on the uh those railroads um so then that kind of gave them a cost advantage and then from the cost advantage they could undercut on cost compared to other other refineries so then then they basically

consolidated that advantage and i've got a quote here from a book i believe it was the uh ida tarbell book from like 1901 or something like that um but basically a representative or multiple representatives from Standard Oil went door to door to each refinery in the U.S. and said, here's the quote, you see, the scheme is bound to work. It means an absolute control by us of the oil business. There is no chance for anyone outside, but we are going to give everybody a chance to come in. You are to turn over your refinery to my appraisers and I will give you Standard Oil Company stock or cash as you prefer for the value we put on it. I advise you take the stock it will be for your good so is that good business though or just great execution i would

say well i mean that's that's a great business after the fact that you control 90 of the refineries in the u.s by yeah and the they got there through great execution but i would say by 1880 that that was one of i think they're accounting for like three percent was it a huge chunk of america's gdp yeah and they still lasted till today exxon mobil chevron and one other i can't remember i think that belongs i mean if they lasted for me yeah they lasted from 1880 to today i mean it's pretty damn good it's pretty dang good all right what's your third second second second philip morris and altria now i believe this may be the one that brett was referring to or alluding to earlier uh and it has certainly had its regulatory scrutiny but i've got a warren

Buffett quote here on why he said, even though he never invested in the nicotine business, he talked about why he liked it. He said, it costs a penny to make, they sell it for a dollar, it's addictive, and there's fantastic brand loyalty. So there is that the customers are sticky because they're quite literally addicted to it. So you don't have to go out and acquire the same customer twice, usually. And then also the regulatory pressure over the last 50 years has made competing with them very difficult just because you can't really market in cigarettes anymore. And governments have tried to kill them. They literally have to put this kills you on every package and people still use it. I mean, that's pretty good.

Yeah. And so I would, yeah, I would say any company that's able to have sustained, I haven't checked in a while, sustained 50% operating margins for more than a decade, uh definitely belongs in one of the best business discussions um so that's my number two any any debate on that number two or specifically or any of them just philip morris ultra in the uh i guess i agree but i don't know what do they think uh i mean we're talking about the best businesses in the world not not my uh not my um philosophical uh beliefs so yeah exactly i have no problem putting them in that top five i think it makes a lot of sense yeah i would say um i see the argument argument you're making um under my criteria which is which i'll share when it's

my turn to go it wouldn't have made the cut um but that's you know that's that's differences of opinion well it's it appears for a reason it appears ian has an esg list don't no don't pin that on he's going for flows he's going for flows i'll also make the argument that this is one of the best esg companies in the world by uh killing enough people that uh it's reducing carbon emissions exactly excellent point you know yeah i mean i i haven't seen a sustainability report come out yet uh anyway all right my number one i think people probably i i imagine every may every every one of us might have this it's google for me um they i mean it's basically like a toll road on information today um and like and i would almost add maybe i don't know which i like

better if it's Google search or YouTube, but YouTube, uh, it's got the two things that I liked with the network effect and the user generated content. Um, YouTube basically says advertisers do all the work and then users do all the work. We don't do anything, but you're going to pay us. Yeah, that's pretty much, that's pretty much it. And it's, and, and now they can like and now they can erode the free part because they have the youtube what is it youtube premium they can either make it a subscription and they can just bog down the youtube free with ads which i know they've been doing and it bothers me every day but i still don't stop spend i i don't i keep spending time on it so it's just a matter of time until i convert um and then they can just

monetize me that way but uh i would say definitely one of one of if not the best businesses of all time and i don't some people i mentioned that on twitter and they were like well it hasn't been around long enough to know if it's the best business of all time but i can say with utmost confidence that this will be around for another decade yeah i'll spoil i put youtube in my i had in i took it out because i was going to do specifically youtube so it's in my honorable mention but the only thing is the tens of thousands of um what are they called content moderators need it that's what makes it a bit worse in my opinion than some of the like business models just because you need that and that's kind of like a little bit of a roadblock to margins i

mean they still have like what 50 operating margins we have no idea what youtube's that yeah the uh i will say similar to facebook probably the uh do you think that'll be automated over the next decade oh yeah you're asking a machine learning scientist here i have no clue i have no clue i guess that's true that's interesting all right well uh what'd you guess any any gripes yeah i've got something to weigh in on google with um spoiler alert it is not on my list um i considered it and i think there's a lot of interesting things about google and it's clearly been a great business over the last 20 years. But I wonder, kind of similar to some of the Twitter comments you were getting, Ryan,

about the staying power of Google. And I think that over the next 5 to 10 to 15 years, there's a chance that some search starts moving away from Google and towards things, towards different types of searches. And so one example of that would be Pinterest, where people start searching more visually. And I don't think Google, at least currently, is really set up to match that in quite the same way. I think there's some interesting things going on with voice search, potentially AR and VR. And I know that's getting into crazy town a little bit. And there's just so much uncertainty about what that would really look like. But I don't know that the search business was revolutionary in the way that they got it

with backlinks originally and created this monopoly, I think is really impressive. but I'm not sure the monopoly is impenetrable. That's interesting. So moving into more specific apps, stuff like that, is that kind of... Yeah, maybe more specific apps, maybe instead of searching for things. This is a little bit of a shameless plug for Merlin. But I think conversations with people to answer questions rather than just searches are going to continue to rise. I think YouTube is another good example. And obviously, Google does own YouTube. And so So, um, they've got this covered, but I think searching for videos, um, and just getting answers to videos rather than at the general web, that there's, there's an opportunity,

I think, for more curated, um, search engines. Amazon, Amazon, Amazon has been eating share a bit. I mean, everyone's been winning right now over the last five years, but, but isn't, I don't know. It still feels like Google's the dashboard to all those things. Maybe not on Amazon. I started Amazon. really yeah why not i google every amazon every time i go to amazon i know i start i google

amazon.com and it just pops in the they are not making money on that i know but they're not making money on that because it pops it's still a dashboard it's still it's still starting they're not making money on that compared to a sponsored listing i will uh yeah i do think maybe if there is one risk to to google especially search i would say that it maybe there's a world where people avoid search in some way i could see that most likely happening on mobile um just people whatever your search is it's uh like if you have a niche search you basically go to an app to find that well they have to pay 18 billion dollars a year to apple so that does that they feel the need to do that. They feel the need to do that. So it's like, I know, but they feel the need to

do that. Would the people still use Google? If not, does that make your business that a little bit worse when you're forced to pay $18 billion to have your service available? Because I would say if you're the one of the best businesses of all time, everyone would just come to you. Yeah. But search is still growing though. Like it's not like, it's not like it's fading. And then, oh, I mean, I love, I think Google is a great business. The other thing I'd say is I think they have diversified away enough that if search were to decline, there's still a business underlying it that is, whether that's YouTube or Google Drive or Google Cloud. Maps. I think, though, there isn't a whole lot of concern.

I feel like there's enough margin of safety, I guess. Yeah, I feel like if you're listening, you might be thinking I'm arguing with you, and I kind of disagree with you, though. All right. I do appreciate the point. Should we go to Ian, your list next? Sure. That'd be great. So I'm going to lay out just a little bit of my criteria. This wasn't very scientific or there's a lot of different directions to go, but here were a few of the things that I was considering, not any sort of specific weightings, but I was considering returns for investors, impact on the world, which may just mean impact on me. And what I mean by that is something similar to the snap test that David Gardner talks about. If you snapped and

the business went away, would anybody notice? And then more importantly, would anybody care? Longevity, all the companies on my list have been around for a significant amount of time. And most of the ones on my list have gone through successful leadership change, which I think is something that is important for great businesses. And then staying in power as well, which is the point I was making with Google. It just was part of what kept it off my list. I may be dead wrong about that. And I will say that all those combined, I was looking at this as much more of an execution question rather than an industry question. And so for these businesses, I didn't care what industry they're in. Did they really execute?

Did they win the game they were playing? And so that's where I'm starting. So number five on my list is Salesforce, arguably kind of the original SaaS company, software as a service. It's never in its history had a year of under 20% revenue growth, and it's had over 20 years of history now. The annualized return since it went public in 2004 is 26% a year, which is, you know, I'd be pretty happy with a 26% return for over 20 years. And then just another note on revenue growth, 51% revenue growth, CAGR, since its inception. And because it has acquired a lot of companies too, I wanted to do revenue per share. It's grown revenue per share at an annualized rate of 31% since it started.

And so just pretty impressive, consistent growth. The idea that it not only has had that high growth, but also never had a year in its history under 20% revenue growth is pretty striking to me. And so I thought it deserved to be on the list. I'd say the one thing that probably kept it a little bit lower on this list is the leadership transition is a little bit to be determined, you know, Benioff's kind of been in and out and, but I think, I think they're preparing for, to be a great business for years to come.

All right. That's a bit, that's a, I think it might be the first one. I might be the only person with Salesforce so far, right? I'm not going to have Salesforce. All right. That's a good dark horse. I do like that one. Good dark horse. Yeah, for sure. Yeah. And I think one of the things in terms of the impact on the world is it kind of showed people, it created all these other businesses, arguably, right? There's all these other businesses that sprouted out of it, or not out of it, but modeled after it. And so I think a lot of the software as a service industry can attribute a lot of kind of its success to Salesforce, maybe the way.

number four is going to be even more of a dark horse maybe um i was thinking about putting in and out here but just a little bit too small probably um that was that's as a southern california uh college graduate i might have to give you a hard time on that one no that's a good one i say it's good the food's not i would argue not even that good and people go dude those lines are insane yeah so the one i ended up going with um it was kind of between these two for number four. The one I ended up going with for number four is Chick-fil-A. Again, kind of a similar thing. What'd you say, Brad? I'm sorry to interrupt. I thought you were going to go with Chipotle, but Chick-fil-A is delicious. So good pick.

Yeah. So both of those companies have in common private, family ownership, cult followings. Anytime a new location opens for either of those places, there's lines around the block. And I'd say that the other thing that they have in common is great prices and exceptional service that every time you go there, the people, at least it seems like to me, people are nice and a different level of service than you get at most fast food restaurants. If you value Chick-fil-A at around 10 times sales, which is the McDonald's multiple and maybe too steep. But if you value it at 10 times sales, they did about $10 billion in sales, I think it

set in 2019, 10 or 11 billion. And so they're north of $100 billion company with that metric. Somewhere, if it's a little more conservative, maybe a $50 billion company. They're franchised, right? They are franchised. But they have a little bit of an interesting franchise model. It's not quite the same model that traditional franchises are. They have a little bit more control over them. So that's number four on my list. I think it's just been a great business, continues to grow cult following um number three for me is disney oh disney's on this list like that yeah because of the longevity of it i think it has a lot of staying power i think it's had a

tremendous impact on the world um starts with the visionary founder of walt disney but then i think one of the most impressive things about disney is how it's continued to survive and thrive in the years since Walt Disney, particularly during the Bob Iger years, I think was just very impressive. They've had a commitment to excellence. They've gone into many different businesses, but always, not always, but almost always found ways to complement each other. And they're in just about every American's life in some way. The one, there is a little bit of a knock on it that in the last, I measured returns, including dividends, reinvested for the last 20 years. and their annualized return over the last 20 years is only eight and a half percent a year

um part of that suits a recent decline in the stock but i would also say that um some of the big value creation of disney came in the decades before that um but i think that for me that goes up as one of the one of the top businesses that's definitely yeah it's mind share number one i would say i mean i like i think the theme park's even the best part disneyland and disney world specifically or whatever that you they got them internationally too i'm just thinking of america those are some of the best business brands in the world yeah being able to pair that too with your just uh digital ip i mean it's yeah yeah that i wish i wish i had thought of that that definitely belongs on the list that was fighting in plain sight yeah

all right did you have something to add brad yeah i was just gonna say swing and miss there for me as well just i mean when you can when you can make like iron man four five six seven like when you can just turn your movies into these massively profitable hits and and and know that um like you have the ip to to to kind of ensure that success i mean that's just such an advantage for them so yeah good pick yeah yeah for sure and i think the other thing about disney is they we joke about this all the time but i think they have a true flywheel right they make great content which then helps them sell more tickets, which then helps them sell more merchandise, which then helps them gain new fans, which then helps them make the money to then make new content.

And it just keeps going round and round in circles. And they monetize at every level. And I think it gets them on this list versus someone like Netflix, which also has a great business, but doesn't have all those same ways to make money off of content. So I think that's I think it's one of the great businesses in the world. Number two for me is Amazon. I think it revolutionized the world of e-commerce and of shopping in general. They have done a remarkable job, I think, of adding other businesses to the core business over time. First, by expanding their products. Instead of just being books, there's books and music and games and just kept adding, and then transitioning to new businesses like third-party sellers, ads, Amazon Web

Services. They've done a pretty extraordinary job, I think, of just finding the right verticals to add to their core business. And they've had remarkable returns since 2000 as well. They're at 18.1% annualized for the last 20 years or 21 years. and I think I don't know I think that's

there's probably other people who would agree with me too but I think that's been one of the great businesses of my lifetime at least and I think it has a lot of standing power I think there's some questions about

I don't know what you guys think about this but I'm kind of curious to see whether it gets broken up in the next few years whether by choice or by regulators just because I think

all of these all of its businesses have particularly AWS could be standalone yeah ADV I don't know they might just do it

because for value creation but it probably depends how much real problems the government has that's like a good problem to deal with is amazon but i kind of think amazon prime is similar to you know in in quality to the costco business model where that subscription you're just locked in with minimal minimal churn from families i agree i would i mean it uh amazon prime definitely like yeah that definitely belongs in the discussion but i would put amazon more on the best execution list i don't know if i'd put it on like the best business capital intensity list just because it's it's one where they've had to perpetually execute and kind of raise the bar over and over again whereas google when i think of like the best business model it's something where they kind of

caught lightning in a bottle and then they were able to just sustain that and build on it without needing to kind of reinvent themselves although surfing versus right it's kind of that analogy yeah yeah i'd say that all right number one ian or brad's got something brad yeah just to interrupt and keep blabbering i just a lot along those lines i think if we did this in 20 years and the trade desk was still um had had those had had the dominant market share and and at the same 20 years or a successful 20 years, I think I would consider it, putting it there just because it's had Apple and Google and all these companies trying to like erode its value proposition and hasn't worked. And then also they raised $7 million before turning profitable. That's all

they had to raise before turning into a hyper-growth profitable company. So I just think along those lines of capital efficiency, it's just such an important idea in today's markets when you have the Ubers of the world burning through billions and billions and billions of dollars before turning EBITDA positive. And this isn't really relevant, so I probably should have just zipped it. Oh, Trade Desk is a future honorable mention. I think Trade Desk, yeah, that's a definite candidate as a future one. It's too early in their life cycle, but I'd put way heavier odds on them versus Uber. All right. What's your number one, Ian? Yeah, that was a great comment, Brad. That's going to get me thinking a little bit, but I'll focus on the task at hand. My number

one is Apple. And Ryan called it earlier, but that is my number one. I think it changed the world with the iPhone in all the ways that Ryan described earlier. I think it's had an incredible commitment to excellence, both in the products, which was really spearheaded by Steve Jobs, but then also operational excellence, which has been spearheaded by Tim Cook in the following years. And I think it may be, I'd like to get your guys' opinion on this, but it is perhaps the best leadership transition of all time from Steve Jobs to Tim Cook in terms of continued execution in the midst of even some turmoil at that time with Jobs passing away. And I'd say that that is also somewhat unexpected because I think their leadership styles are

fairly different. And maybe that's what it took for the leadership transition to go well. But for Steve Jobs to have the run that he had, followed by the run that Tim Cook has had, I think is very impressive. And since 2000, Apple has returned 29% a year, which puts it up there. It's the highest annualized return on my list and puts it up there with, with some of the top returners of all time. Monster energy, right? Yeah. And that's way smaller.

Yeah. I mean, you can't argue with Apple. I don't, I don't, I don't think you can. Best transition of all time. You might be right. Maybe. I like, I think Satya Nadella created a ton of value at Microsoft. But that's just because of how bad Ballmer was at his job before Satya came in. That's why the transition was so big. He had a lower, yeah, he had a lower bar. Yes. Right. I think if you went from Bill Gates to Satya Nadella and had that string of success

back to back, which may have been impossible, but if you had that string of success, I think that would rival what Steve Jobs and Tim Cook had done. But for them to go uninterrupted and just continue on their dominance and with really no... This is biased by my bullishness, but with what I would say, no end in sight. Apple is one of those few companies that they can say the craziest stuff like oh maybe we'll make an apple car or maybe we're going to make ar glasses or vr glasses we're going to do this or that and the other thing and you have to take them seriously you know you have to you know not just laugh at them there's there's a real possibility that they can do just about whatever they want fine with the brand yeah all right let's go uh your list

yeah so i went my criteria was less you know so we came up with our own kind of criteria ourselves here it was more of a business that it's more like the ham sandwich management type business where it's it's really impossible to see them it'd be really hard to kill this business combined with need for almost zero marketing where your consumers or your customers are going to come to you no matter what um so five i have and you guys might be a little surprised here lvmh which is basically Louis Vuitton. I think that is one of the best businesses ever because it's not even about your design. It's like you just put the little thing on it, the logo, and you can charge 10 times as much. I mean, the products are high quality, but basically you have just a high

quality product. You sell it for whatever, six, seven times what it costs. And you already have the customers that are going to come to you automatically i feel like that would be a very hard business to kill yeah and they build like you are the resident fashion expert in the panel so i mean yeah no i i know none of us are fashion experts you don't wear any louis vuitton gear i know i would i say that as someone who would never buy louis vuitton but man i mean i don't know like it's really hard for them they get the what's crazy to me it's similar to apple in this regard but even more extreme the more they raise prices the more people want to buy it and some companies have tried to pretend to do that like peloton peloton they try well i once they tried

to do that and failed um and we'll see if tesla can do that in automotive i know people made that argument i kind of argue that it's too expensive in general but with lvmh i don't know i guess uh anything else on that we're gonna go to number four that's a good one that's a good dark horse number four the new york stock exchange i think this is another one where and this is just going through my criteria of basically no costs super high margins it's almost impossible to compete uh they're a part of a conglomerate i believe so i just chose the new york stock exchange but i believe they're they're like combined with i don't know there's like are they in there i don't know if they're owned by smp global but uh there's all those acquisitions i don't follow that space

very well at all but i know the new york stock exchange itself is a great business one it's lasted forever and two it's impossible i think it's impossible to kill i mean you have the nat you have a duopoly now but the reason the nasdaq got so big is because they cut landing a bottle with the tech bubble and i just think it's an amazing business like they have the bit if you want to go public you have to go through that i don't know what are your thoughts on any any concerns with that oh definitely i i mean the size is limited the size is limited but usually a fan of exchanges to begin with i think those are typically especially when i'm looking like in like emerging markets that's usually like the first business i look for if i uh if it's like

an area i don't know yeah because it feels like the most durable yeah and it's just the size is the only limitation any assumptions yeah i was just gonna say i would i was just gonna say that I, I a hundred percent agree that it's been an incredible business in the past. And I agree with you. I think it's, I think it's going to be good in the future too. I think it's got a good note, but to play devil's advocate, do you think there's any risk of web three or crypto or I know, I know who I'm asking,

but do you think there's any risk that there's some applications there that might limit the need for exchanges? Just because I think that there's, I think we can all agree that there's some kind of crazy use cases for a lot of the crypto or Web3 or blockchain technology. But I think something like an exchange is one of the places where it might make some sense to use some of that type of technology. And it's not too far fetched to see it working. So do you think there's any risk there? I'm going to stay open minded and say yes, but I think it's highly unlikely. So I guess maybe that's why it's lower on the list here.

But I got another one here that is potentially disrupted by crypto. So we'll see. Brad, what do you got to add? Yeah, just on the exchange front, just to give a really stark case study of how important it is to be a large company needing funding to be on the New York Stock Exchange. We talk a lot about these Canadian, or not these Canadian, the American cannabis growers and how they're listed in Canada. Now there's no liquidity and how no matter how well they do, it doesn't matter because

there's no liquidity and institutions can't buy them. So for public market funding and for capital, yeah, it can't be overstated how important getting funding on a major exchange and getting funding on the New York Stock Exchange really is. So kind of an anecdotal piece of evidence, as we say in our… They have brand quality. I would also say, I would also maybe throw, and hopefully I'm not spoiling your any future picks, but I would throw the ratings agencies in there as well. Yeah, that's in there too. I don't know them well enough, um, to, to make any, because they're, I think they're slightly hard to understand, but people have made that argument that they're some of the

highest quality businesses. Yeah. All right. What's your three, three. I'm going to go. And this one is going to be a surprise to Hershey. This one, that's, this is my dark horse, but I think it's one of the best businesses in the world.

I honestly think it might be better than Coca-Cola because in that, in that CPG category, because coca-cola gets attacked all the time by regulators and stuff on the sugar and you know how soda is bad for you and some of these other candy categories they just like them too much to to attack exactly people people like hershey too much and yeah they don't attack them for whatever reason the the the culprit has been soda when both are you know just sugar and one hershey is similar to coca-cola where they both have that distinct taste that no one's basically allowed to replicate two uh hershey's been around for i believe over 100 years and three they they own a lot too don't they uh they what they own a lot of other like yeah but i'm

specifically specifically hershey bars and whatever all the hershey hershey ones i know i'm kind of cheating because it's like in the uh a subsidiary almost of a public company but yeah those ones and it's also a part of the culture because with s'mores and whatever all those snacks and stuff it's not a it's not a chocolate bar it's a hershey bar so i think that makes them one of the best businesses of all time and their stock returns i should have done the actual research like ian but their stock charge just look at it it's vertical over over are they are they a part of mars no hershey's its own company mondelēz oh isn't it no no it's its own one you're you're oh it's probably like it's uh it's hershey hsy right yeah let me look at hsy hershey county let's get

the all-time stock return that's a fun one i'm curious what else they own you have that you've got that addiction argument too a little bit with with sugar and and kind of an association mace um definitely so yeah it's uh well the all-time returns are so large they're taking they won't look they own reese's they own reese's too yeah it's a good one as well um okay no it's like oreo oreo mondelēz owns oreo okay cool there's another good one Yeah, that one fits culturally as well, at least in the U.S. Number two, Philip Morris. We already talked about that one.

I don't think we need to go through it again. Number one, and I'm surprised no one chose this, Visa. I was definitely considering it. Why didn't – I want to ask why – because I think everyone understands how it works. Why didn't make it anyone's top five? I don't entirely – I don't know. maybe I don't know the business enough, but I don't entirely understand all the risks associated with it.

Well, my argument is that it's just, everyone has to come to them and their take rate on their, whatever 0.1% take rate on world GDP growing percentage. Cause it's more, it's going digital. So, and they have no marketing expenses and it's inflation protected.

You can run it with a hundred people. I don't know. That's what I heard in a business breakdowns podcast. I'm going to trust them. I think they might've been exaggerating, but I'm not talking about visas. These ancillary businesses, the core visa product. Okay. I don't know. I have no rails. Yeah.

I have no gripe with that. And you think about like Venmo and PayPal and Apple pay and Google pay, and they all plug into plug into these rails. So, I mean, you need a real, you need a massive defy decentralized, all the buzzwords overhaul for them really to be displaced which which i think is a lot longer of a shot than maybe some seem to think yeah ian this is another one web three yeah it could and there'd probably be some people who would argue that i think i tend to be i tend to agree with you that i think at least for for a number of years to come the visa is going to be visa and

mastercard are going to be in strong positions is there a reason why you went with visa over mastercard uh i just think they're the number one like uh name so i mean they're very similar businesses i don't follow them too closely but i just choose visa because they're the one that it seems most people choose instinctively so i'd rather have them i know mastercard's executed better over the last 10 years but i think just because of visa's brand is slightly better um because i remember like when i was younger my dad or said one time like no make sure you a visa card because mastercard's not accepted everywhere that's in people's heads i don't know i think that brand kind of gives them an edge although mastercard obviously up there as well

amex amex amex is a pretty pretty good brand as well but that's more of the exclusivity stuff discover i don't know yeah well watch out watch out for uh what's what was that what was that fraud card called watch out no that well that was billy mcfarland yeah well that that had to be on visa oh well all right it had to be on something maybe he didn't maybe magnesis wasn't on anything it was just i don't think it existed so yeah it actually isn't for paying it was for slapping on the table um all right any other topics anything to say before we close out i was going to make a nicola joke and put it in my top five but i did see so i tweeted out what's the best business of all time and i had a lot of a lot of people said the irs haha yes it probably is but

the uh a lot of people said nicola um i was gonna put in my top five and see it but i i i don't know it didn't feel right yeah i agree with i would agree with the irs on the standpoint of um businesses and with moats and all those types of things i don't know if i was using my criteria with execution involved i don't know if the irs is in the government's capital allocation strategy has been um something to to uh be proud of over the last number of years but yeah yeah i'm gonna go through some of the answers and see if we missed any yeah all right here's here's hershey's return though is over a hundred thousand percent so casual 10 000 beggar since the 70s so right yeah it's just okay berkshire would you guys put it in there no it's well ian's criteria

to execution my criteria of no is no just because it it's not one that the business just comes to them it's like it's all about management yeah and i so i considered berkshire as well um but it seemed to me there's just too many businesses within berkshire to say i don't know i i didn't want to i had a hard time just attributing it to berkshire and it also has the problem um that they've had just the two leaders for the whole time and there hasn't been any sort of transition i think it's yet to be seen what will happen um when charlie and uh warren decide to retire so what about railroad questions there railroads could be in there yeah i was saying i considered that too yeah a lot of people said the credit the ratings agencies a lot of some uh visa we

got some visa people in here one of the uh i think he's the head of marketing at our sponsor here he he agreed with you on a lot of them payments rails plus uh louis vuitton nice yeah schwab what are your thoughts on schwab what about jp morgan like the big banks no no no disagree schwab's interesting though but i still don't i still know the marketing they had to spend too much in marketing all right too competitive huh i i think so i think so why is that a better business than Hershey. Sue commodity. Yeah. It's a, well, yeah, it's a commodity with less pricing power essentially. Yeah. But they have the, they have the scale. I mean, maybe you can make the Costco argument because they have the scale, but there's other people with that type of scale.

There's no differentiation. If you guys had to put one position, so we zoom forward 15 years from now, I don't know if we're going too long, but zoom forward, let's call it a decade. Cause that's too long anyway. But what position in your portfolio do you think has the best shot of climbing into these ranks and oh that's an interesting uh match group for me i think match group's a good one network effect there yeah it's huge and it just it's it's pretty anecdotal but people my age pretty much everyone that's single well we're all the same age i think yeah i don't know why i said my age but i think we've all witnessed it uh that's just It's a staple of society.

Demand is coming to them. They don't have to spend on them. I don't know. That's kind of one indicator for me. Because I was thinking, if I'm looking at long-term stock performance, something like EA or Autodesk, just because of the stock performance. And I think they're quality businesses, but they still have to do a lot of marketing and a lot of R&D. which i think look people love r&d but i if you have a business that's going to have the same revenue with spending one percent on r&d versus someone that's forced to spend ten percent of

r&d every year i'm going to choose the one that's going to have the same defensible position spending one percent of r&d so i think that is honestly a downside even though in specific industries versus competitors having that r&d spend and be able to scale with that can give you a sort of advantage and can kind of be a good indicator on in a vacuum i don't think r&d spend is is what evaluating the best business ever if you have to spend an r&d it's kind of a negative to be honest what about you guys i think for me and i'm kind of surprised i didn't even think of this one it wouldn't have made my top five anyways but i think shopify has a chance to get there just like how many i think a little too young and just a little um i don't know i think it's close

I think it deserves honorable mention right now. But I look at it and think, another decade from now, more and more of the world's businesses, I can see moving to Shopify being the hub for their business and what they run their business on. And then I think it becomes, in a slightly different way, it becomes the rails for commerce throughout the world. And so I think it could have a similar role that Visa and MasterCard has today with people. It's just a necessary expense that it's run through all transactions. Yeah, it's a hell of a business model. Brad, I think you may have already disclosed yours with the trade desk. Do you have any others? Match Group is a great answer. I'd also throw maybe the highest likelihood or best operator

among the cannabis industry, maybe Green Thumb in there, just because I think there's going to be two or three really large winners in that industry over time. The dominant CPG player, kind of? Yeah, yeah. Sort of along the same lines as Monster and Philip Morris, just a different category that is now legally allowed to grow, pun intended. So maybe Green Thumb, maybe, and then the Trade Desk with Match Group. I mean, when you have 50% market share of updating downloads, it's hard to argue that that's not quickly turning itself into a elite business. Yeah, just keep Bumble around for the fake, no monopoly stuff. All right. I think that's going to do it unless you guys have anything else. No, I mean, should we let you guys talk about where you can find any of this stuff? Like Brad, do you want to talk about your newsletter at all?

Just I will link it, but stock market nerd, sub stack, stock market nerd.com. Did you move from sub stack? Beehive. Yeah. I wanted to use a morning bruiser. The founder built morning bruiser for a program essentially into that newsletter platform. So I really wanted to tap into that. So Beehive, but stillstockmarketnerd.com. Cool. And then Ian, download Merlin. It's not with us other losers on Android yet, but it will be coming soon. Some point, right? At some point. Yes.

At some point it's coming to Android. Yeah. Check out Merlin. You can give me, I'm generally available. So if you click on it and set up an account, it'll take you like two minutes. And then you can see me on the homepage and give me a call and let me know what you think. Awesome. All right. Well, let's throw a disclosure in here. Brett and I are not financial advisors. anything we say or discuss here on chitchat money is not formal advice or a recommendation we are however general partners at arch capital so clients may have positions in the securities discussed in this podcast before i sign off please if you're still listening leave us a review it helps the show grow and we really appreciate it thank you guys we'll see you next

time Thanks for watching!