The Canadian Investor - Breaking down inflation and network effects

Episode Date: January 11, 2021

We start by talking about the first week of 2021 which was completely crazy! We then have a discussion on inflation and how it impacts you. We finish the episode by talking about how powerful network effects can be. Tickers of stocks discussed: ETSY, FB, MA, V, GOOG, MTCH, TSLA, AMZN Want to send us a question? Check out our Anchor.fm link in the description below and leave us a voice message! Anchor voice message: https://anchor.fm/the-canadian-investor/message Twitter: @cdn_investing Getstockmarket.com --- Send in a voice message: https://anchor.fm/the-canadian-investor/messageSee omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is

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Simon, this is our first weekend recording in the history of this podcast, I think, by the way. Yeah, I think so. Unless we did it once in the very first episodes. But if not, yeah, it would be our first or second one. So we have the advantage that the market is closed today and we can look back at a pretty hectic week. I mean, if this is what 2021 is going to look like, 2020 was just the preview. Let's not linger too much on this because i mean you you get news everywhere uh obviously trump being banned from social media is pretty

uh that's that's that's big news uh and and it shows i ran a like a joke of a poll on my twitter yesterday that just said this is before twitter did the ban and facebook was doing the ban and i just said who's the most powerful person in the world and it was just four different options for mark zuckerberg depending on how you wanted to spell his name and included all kinds of uh nicknames like the zuck so this this is this is gonna make a lot of people mad. And I'm not going to comment on if it's good or bad. But this is large corporations flexing their power right now. And it's a very interesting time. I'm just going to leave it at that.

It's a very interesting time. And it's going to be interesting to see how this shakes out. very interesting time and it's it's going to be interesting to see how this shakes out yeah i would not have liked to be in the shoes of mark zuckerberg or jack dorsey for twitter um probably not easy to to make those decisions knowing that there's going to be backlash whatever they do um i think dorsey was already already getting a lot of flack with the um the labeled tweets that he was doing for Trump. But this week, I guess with the incitement to violence that Trump did in those videos and his tweets, I guess he didn't really leave them a lot of choice of making those decisions.

I know Zuckerberg said that they'll review the decision after Trump is out of office. But we'll see whether it just kind of continues then or not. Right. Yeah, it's wild stuff. But I mean, you're right. They no matter what they do, people are going to be have their opinion one way or another. So that's just that's that's the state of what we're living in right now so let's let's not talk too much about news because it is the weekend but

simon it is january 9th and your bold predictions that were so beyond bold they're almost true so beyond bold they're almost true like do you do you choose to call a man it's like uh i'm giving you like the first the first period um intermission interview and i'm like okay you're already up 10 nothing uh what are you gonna do for the next two periods because it's looking more and more like you're gonna at least hit this one i mean come on tesla is getting out of control yeah it's crazy i mean what is it at now like 835 billion something like i'm just looking out here it's yeah 834 billion in market cap yeah i mean i and i went out of my way to uh to make bold like really bold predictions some that i I thought had little to no chance of happening. And of course, Tesla is already closing in on a trillion dollar market cap.

And I've seen interviews of analysts, of people that are bullish and say that it'll keep going up. And the arguments are still, they kind of still make me chuckle a little bit. But I'm not going to try to understand the stock, like I said, in the bold prediction. So yeah, maybe my bold prediction will come true in the first month. It's weird, huh? And it feels almost like it's been a year in a week.

Honestly, honestly. Yeah, I'm looking here. So Facebook is a 762 billion in market cap business right now. So it is one trading day away from being 100 billion bigger than Facebook. So do what you will with that information. But we've been, I'm hesitant to say wrong because in a split second we could be right like in a very very split second we could be we could be right yeah and which has made uh elon the the richest person in the world too so he just passed uh jeff

bezos this week yeah and so so that like so part of me looks at that and i go like that's awesome like we we need we need someone like elon solving problems real world human problems uh to be very very powerful and and very successful so part of me is like, I'm a huge Elon supporter, but I am, this is what I'm telling people who ask me, because I get asked about Tesla all the time, obviously. I mean, everyone and their dog wants to know what's happening with this stock, obviously. And what I say to people is, if you've held this thing and you are crushing it, you know, don't, don't sell winners and stuff like that. This is, this is true because you've made a boatload of money on this and it's good to hold your winners if the thesis remains. Now on the,

on the other side of that coin is if you are new to investing in Tesla, may have been one of the first stocks you picked up last year and caught in all the hype. It's not this easy, right? It's just not this easy. Making boatloads of money in the stock market is not this easy. So I just want that to be kind of well aware and understand your portfolio. If you are super sensitive to a drawdown in a company that's very highly valued, like a Tesla or like any other company, if you are very exposed and a drawdown would absolutely crush you and you would act irrationally, you need to diversify a little bit because this concentration of holdings has created you wealth, but the concentration of holdings can destroy wealth as well. of holdings can destroy wealth as well. So just be aware of that. It's not this easy.

Like, are you seeing this sentiment of making money in the stock market? It just seems a little too easy right now. And it worries me. And I'm a perma bull. Like I am always optimistic, long-term, always optimistic, but it's a little eerie out there that's just the feeling i'm getting i'm curious about how you're feeling um yeah i mean a lot of people uh unfortunately lost their jobs earlier into in 2020 and a lot of people had some side cash or in the u.s they got stimulus checks in canada they may have gotten the CERB benefit as well. And you have people that probably were able to put a bit of money in the stock market and may have picked up trading as a job. And it's easy when you're just trading and you're trading on the way up. But once things start going down, especially if you're using leverage, it can be really dangerous. So I

think that there's a lot of people that have a false sense of security right now. And yeah, it can be really dangerous. So I think that there's a lot of people that have a false sense of security right now. And yeah, it could be dangerous for them. Who knows, maybe it'll just keep going up in 2021 2022. But you may see a lot of panicked investor if we get a 2030% drop like we did last year. Yeah, that's right. We'll see how it plays out. If that happens, I'll get my checkbook out. Okay, so we're going to have a little bit of a macro session here. Simon's going to give you a brief lowdown on inflation and how the Gov actually calculates their fancy inflation number. Because there's lots of uh lots of discussion around

macro and currencies lately with the rise of crypto that we've seen so so i mean you want to give us just a lowdown on inflation and their imaginary cpi index yeah so the uh the cpi so consumer price index you'll see that that's the most common measure used by the government for calculating inflation. So what is CPI? How does it impact you? Well, CPI, I mean, I guess it's an OK measure to measure the increase in prices. So the inflation for the economy as a whole. The problem with that, there's a lot of there's a lot of issues with CPI and how it's not necessarily reflective of everyday life. So first of all, it measures the increase in prices based on a basket of goods and services.

So that basket of goods and services will have different weightings depending on if it is, for example, the food basket or services. There's all different types of baskets that they do calculate. Housing as well does have a pretty high weighting. It's released on a monthly basis. It does not include everything. So that's really important because the government kind of decides what they include in that. So it does not include things such as the increase in assets and government expenditures and increase in assets. That's really important because assets, we're talking here about stocks and bonds and people may think, OK, well, yeah, well, that's not my everyday spending. Well,

maybe not. But at the same time, assets, I mean, if we're seeing inflation go way and way up, well, it's not out of the realm of possibility that assets will keep going up as well. So we see these crazy multiples. Well, it's possible that this just stays constant because there's so much money being put in the economy right now. So that's that's something that is not captured by the CPI. now so that's that's something that is not captured by the CPI and what's really important for you to know on an individual basis it may not represent true inflation well it won't represent true inflation for you as an individual so if you really want to see how your buying power is being eroded over time you should really keep track of your budget and kind of look at it on a quarterly, monthly, yearly basis. Doesn't really matter, but just to see how based on what

you eat, based on your spending patterns, how much more it's costing you every month, every quarter, every year. So that will really give you a better indication of the true inflation for you and how the increase in goods really impact you on a day-to-day basis. Because one of the things calculated in the CPI is the price of airline tickets. Well, I don't know about you, Brayden, but I think a lot of people aren't traveling right now. So that's not really useful for them on an individual basis. The CPI is used for a lot of pensions are indexed. So they will be used to increase the pension year over year. So that's one of the numbers they use. But again, if your pension is increased by 2% because of CPI increases by 2% based on the government

calculation, but your personal expenses actually increased by 6% or 7%, well, I mean, what good is that 2% increase? You're still losing that purchasing power. And to me, it's one of the most important things to keep in mind when you're investing because the whole point of investing is making sure that you grow your wealth, but you increase your buying power over time, or at least don't lose it. grow your wealth but you increase your buying power over time or at least don't lose it and it really makes right now in the current environment investing in things like bonds or government treasuries not very attractive at all i wouldn't be surprised the next two three four or five years as there's more money coming in the economy because of all these stimulus

packages that you know inflation that of five to ten percent may not be something that is that far-fetched and that could really have big impacts uh on everyone um and i had uh remember that tweet brayden that i did i just kind of tweeted to see what people were uh what their goals financial goals were for 2021. Yeah. Remember that tweet I did? That's right. Yeah, a week or so ago. And one of the replies was really interesting, and something I've been asking myself quite a bit is the person,

I can't remember the exact name, but whoever is listening, the person listening will know that it's them, but building an emergency fund, person listening will know that it's them but building an emergency fund but what he should be putting in terms of like where should he be putting his money in the emergency fund to at least get some time some type of return and that's a really good question because if you're looking at different savings account you'll probably only get one to two% at best, probably not even 2%. And so if you're saving a decent amount of money, and let's say your true inflation, your personal inflation rate is 5% for the year, well, you're losing money, you're losing purchasing power. Your money will increase, obviously,

because of the small interest rate, but the true purchasing power, which is the most important thing, will decrease. That's a really good question. And you bring up a good point because the spark note or the one-liner for what you've described is the Gov can pick and choose what gets put into the CPI and then they can meet their little 2% inflation quota, and that's great. But what's really happening is there's been a huge debasement of all countries, not just Canada. There's been this huge debasement, printing of dollars, and where's that money going?

It's going into assets. So inflation looks a little different right now, and it's a good point to bring up. And as for that question, it's a great question, by the way, is the way I look at an emergency fund is you are accepting that, you know, cash is trash in terms of receiving a return. And you shouldn't be really looking to receive a return on your rainy day fund. Because that's what it is. It's a rainy day fund is when things go south. If you lose a job, if you need money quickly, that you do not have to sell your stocks or your other assets in inopportune times. So it can have a massive potential in terms of a return, because say you needed that rainy day fund

in March of 2020. Now, you would have had to sell stocks at an inopportune time and you would have had to unnecessarily interrupt compounding which you should never do so the return the inherent return on your rainy day fund now if you think about it is huge. It's massive because you didn't have to sell stocks at an inopportune time. And if you were awake for the last couple months, the stock market rallied in a major way and reached all-time highs. The cash is trash. I get it. You're not getting a return on it. They're debasing the dollar like nuts and you're like, I don't want to own this. The way I look at it is it's a rainy day fund and it should be treated as such. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you

can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit Questrade.com for details.

That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at

Airbnb.ca forward slash host. That is Airbnb.ca forward slash host. Do you have anything to add to that, Simon? Yeah, that's a great way to look at it. ultimately i mean i'm not sure we have a perfect answer for that question too because the money like brayden said it will keep getting devalued but again just that the fact that you're not forced to sell something if you need the money has a lot of value in itself something inflation as a whole this is one of the big drivers behind the rise in bitcoin i know we we talked about it, but a lot of people are using it as an inflation edge. And one last thing that I found really interesting about inflation, I've been reading a bit more on it recently, is the recent government stimulus. The true impacts on inflation may not be seen for a couple of years because right now what's happening is a lot of people are in dire financial situations.

So they're not necessarily spending that money. They're making sure that they're saving it more in case of a rainy day. So when things do come back to normal, it's very possible. And a lot of people are speculating that there's going to be a big infusion in spending in the economy because then people will have that extra money saved up that they'll be ready to spend. So inflation could really pick up in a couple years from now, especially because a lot of people have payments that are being deferred right now. So those payments, whether it's credit card payments, whether it's mortgage payments, these things will, they'll have to be paid eventually.

So there is a bit of, yeah, there's a bit of discrepancy with the money being infused in the economy and how it's going to be spent. So we may not really see the true impacts of all the stimulus money for a couple of years. And I'm not trying to debate whether it's good or bad. I know a lot of people are hurting and they need those funds. But there may be some adverse side effects down the line. That's a great point because I live in Toronto and I'm in an Ontario lockdown right now. Everything is closed. You can't do anything.

And all this injection of capital and all this printing, it's going to be delayed in terms of consumers actually spending it and bidding up prices and injecting capital back into the economy until we're into some sort of sense of normal and over the pandemic so there's going to be this delay so that's a great point to bring up all right let's move on from macro stuff uh we could talk about macro all day, but I spend very, very little time. Whatever 10 minutes we just spent on macro is my entire quota for the whole year in terms of worrying about that stuff. really quick facts, like frequently asked questions that I get all the time, constantly from Canadian investors. And the first one is withholding tax. Now we have talked about withholding tax all the time. We talked about withholding tax on several episodes of this podcast. And we really refer most people to this Black rock guide that they made on withholding tax so

we can link that in the show notes take a look at that but the the the quick note on this is and this is what most people have questions about is where should i hold u stocks? And I say, you should hold them in your RRSP unless they don't pay a dividend or pay a small dividend. Your TFSA is fine. And the reason for that is they only collect, they're only implied withholding tax or subject to, that's the word I'm looking for, subject to withholding tax on the dividend. Withholding tax is a dividend tax. It's not a capital gains tax. So if you are holding foreign stocks like US stocks in a TFSA, you are subject to withholding tax if they pay a dividend. And it is 15%. So if you hold foreign stocks in your TFSA,

it's not bad. Like, don't lose any sleepover. It's only 15% on the dividend, which will be a fraction of your total return. Like, very, very small on your total return because it's only 15% of just the dividend. So that's the important part. So don't lose any sleep over it. I mean, it's obviously if you're holding a bank, like a US bank, say you own JP Morgan, yeah, probably hold that in RRSP because you're getting, you know, four plus percent dividend yield that those juicy dividend yielders hold those in your RRSP. But if it's some fast

growing tech stock that pays like a dividend that's not even worth talking about, or even Visa and MasterCard, like the dividends are so small, but growing very fast, you can hold them in your TFSA. Like it's totally fine. So that's one piece. And then another one I always get is, are ETFs subject to it? Yes, they are, but you don't see it. So if you own a TSX listed ETF, like VUN, XUU, those are the total market ones. I think VFV is the very common S&P 500 one that I see quite often. They own US stocks. So if you hold it in a TFSA, it is subject to withholding tax. But you won't see it because

the fund deals with it. So say it pays a one and a half percent dividend yield, this entire, this massive index fund that might hold thousands of different US stocks. You are subject to the withholding tax, but the ETF will deal with it. So say it pays a one and a half percent yield, you might actually get like a 1.4% yield. That's what it'll actually show on the prospectus as well. So that dividend yield you see on the entire fund on the prospectus, that's what you're gonna get. You don't have to worry about withholding tax

on top of that because they're already factoring that in there for you. So you don't see it. But just because you don't see it doesn't mean you're not paying for it. So that's something to consider. But again, let me just reiterate for people who are unfamiliar with withholding tax. It is just a tax on the dividend of foreign securities. Just on the dividend.

Once you understand that, it's a piece of cake. So that's withholding tax in a nutshell. Let's move on to another question that I get all the time, which is, what is free cash flow? Simon, we should have like a drinking game of how many times we say free cash flow in a podcast and we'd have a good time. So there's many ways to calculate it and you get to the same number. at the top of the cash flow statement with net income, which, by the way, is the bottom of the income statement. So you see how these things connect? So the bottom of the income statement is net income,

and the top of the cash flow statement is net income. Now, what free cash flow is trying to accomplish is account for all of the non-cash measures and get them out of there. And the reason for why that's important is there's all kinds of funky accounting that you can do to adjust net income. And free cash flow helps solve the problem of removing that. Like what we talked about with the real estate companies, net income is not a useful measure. Adjusted funds from operation, which is a cash measure is very useful, net income not. So what it does is it adds back these charges like depreciation, amortization. It adjusts for interest expenses.

They adjust for changes in the balance sheet in terms of current assets, which will tell you the change in cash on the balance sheet. They're going to take away CapEx expenditures. And that gives you back that free cash flow. And the reason why that's important is capital expenditures matter. Those things actually matter in terms of what it costs to run the business. So a company that's capital light and has less capital expenditures is going to produce more free cash flow. So that's why people like tech businesses because the gross margins are

incredible in their capital light. That's like why a lot of people really like investing in tech. So that's why free cash flow is very important. It matters. Stratosphere, when you go on there, you do the company search and free cash flow is listed as line item and you can graph it. So you don't have to calculate it by yourself because not every single cash flow statement has free cash flow written out as a line item. But it's very important. And a lot of people have adjusted their models to change away from traditional earnings per share to free cash flow or free cash flow per share. So that's a real lowdown on it. But really really what they're doing is they're taking net income and they're adjusting for these cash measures and then also with capital expenditures we need to see that too so that's that's free cash flow did i miss anything seaman uh no no that's good i mean it's

really to me it's a really good indicator um to see how really the company is profitable. The income statement, don't get me wrong, is really important. There's a lot of good information there, but something too that you won't see that often, but you'll see fairly once in a while is when a company has goodwill on the balance sheet and they want to write it off, they write it off as an expense on the income statement, but that has no bearing on the free cash flow. So that's why it can't really skew the numbers. And another one that you'll see, especially for tech businesses on the income statement is you'll see stock based commerce compensation, which may look may make a tech company look like it's not profitable. But then

when you look at the free cash flow, they're really pumping free cash flow like hand over fist. And that can definitely skew things. Obviously, stock-based compensation is important because the more there is, the more you're diluted. So you have to definitely keep that in mind. But those are just examples. so you have to definitely keep that in mind but those are just example and we've talked about I've ranted about REITs before where you should really not use the income statement you should really be using funds from operation which is slightly different than free cash flow but very similar in a lot of the ways because you're really looking at the money coming in and those non-cash items for REITs that are huge in

terms of depreciation and amortization. But no, aside from that, I think that's a really good lowdown. And it's still surprising to me that in those CNBC headlines and all that, they still talk about either sales or price earnings or earnings. I mean. So that's still the metering, right? The earnings per share, that's still in the headline. So that's why it's important to dig more into businesses because those headlines can really be misleading. Yeah, it's so true because if you tell me a company is going to earn $3.64 in earnings per share,

that means literally nothing to me. You are not able to extract any sort of conclusion from that information because you don't have any other numbers to tell you something like $3 in earnings per share. That literally means nothing to me. I need to know much more. So it's funny that you bring that up because I think we talked about that. It's like, it doesn't matter on its own. I think that was one of your, it doesn't matter on its own. In a vacuum, it's a completely useless metric. All right. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online

broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money.

Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests.

It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. To wrap this show up, we have one more topic that I'm going to talk about, which is called network effects. And we talk about network effects all the time. People use the term network effects to describe a moat that a company has built.

And so the network effects by definition is a phenomenon where the increased number of people or participants that use this business's service or products actually improve the value of the good or service. So the more users, the more people who use the service or buy the product actually improves the experience of that good or service because of network effects. So let me give you some really good examples. And I'm actually going to start with one that I never even wrote here on the show notes as I'm reading the definition. And that is Apple. Apple, the network effects of the product, like the hardware of the phone. Apple is like number one example. People buy Apple iPhones because they want the iMessage because all their friends are on the iMessage. And if you're not on iMessage, you have to

use a different means of communication in terms of being in a group chat. You have to go use a Facebook product like WhatsApp or Messenger. Where if everyone's on the iPhone, then they can use the fancy blue bubbles. This is by design. This is Apple trying to create a network effect that if everyone's using our service, our not only hardware, but also software offering, then everyone will be inside of our ecosystem. And Apple is type A in terms of executing network effects

efficiently, both on a hardware and software side. So, you know, they're the leaders in this, right? That's why they're the biggest company in the world. Yeah. And then one other thing about Apple, too, is the App Store, right? So the App Store has a huge network effect, because businesses would not go and put their apps on there if there would not be, you know, billions of people using Apple products around the world would not make any sense. And it's also it's a good example as to why the Microsoft, the Windows phone never really worked is because you have Google with their Android and then Apple with the iPhone, that their ecosystems were already so strong that was pretty much

impossible for Microsoft to break through even with the financial resources that microsoft had i think when did they stop doing it like three four years ago right i want to say i want to say 2016 that number is laying about to me but around there yeah that that didn't take off but it's because of network effects, right? Yeah, exactly. That shows how powerful they are. It does. And that, that speaks to the moat that companies like Apple have created is because the network effect and the first mover advantage being there, creating that ecosystem makes it very hard to penetrate.

Now my favorite network effects, and you can tell by the allocation in terms of these companies being a massive part of my portfolio, is Visa and MasterCard. I think this is the strongest network effect that we know of. And it is two-sided in nature because both merchants and consumers have to conform to this network effects, both online and in physical brick and mortar retail. You have to be a part of this network effect. And the reason for that is everyone has a Visa or MasterCard in their wallet. So the merchants need to accept it.

MasterCard in their wallet. So the merchants need to accept it. And you can't just come out with a new card because, well, who accepts it? And you can't just go to the merchants and say, hey, Simon, I got this new awesome tech. It's great. It runs on these rails. That's what people call the Visa and MasterCard. They call them the rails. It runs on these rails. That's what people call the Visa and MasterCard. They call them the rails. It runs on these rails. And you say, but Braden, no one has that card on them or no one's signed up for that card. So who's going to give me their money? So it's this two-sided network effect

where if you don't have the card, no one takes it. And if you don't take it, no one's going to have the card. And it's really, really powerful. And that's why Visa and MasterCard will continue to take market share of cash. And in my opinion, are the most impossible to disrupt if we are still using fiat currencies. If we are still using fiat currencies, I think it is the most impossible business to disrupt because the rails and the network effect, the infrastructure, it's too strong.

It's a value chain phenomenon, in my opinion, and that's why these businesses are one in a kind and incredible. A couple other network effects I'll talk about really quick. Obviously, social media has the huge network effect. As there are more users, the service improves. If all your friends are on this service, then the service is better. Match Group, a company I've been talking about a little bit on here. You know, who wants to own Tinder in their portfolio?

But hey, this is a pretty strong network effect, and they're the highest grossing app on the App Store. So maybe you want to add to your watch list. Very strong network effect. And then we talked a little bit earlier, like Amazon. Obviously, the merchants being on there to sell their stuff, if you want to find consumers, you go there. But one that I think you own, you might still own,

is a network effect forming like Etsy. That is one in the making right now right do you still holding that yeah yeah i still have etsy and the interesting thing about etsy is a few years ago amazon actually tried to get into the craft good markets and they've pretty much dropped that since then so it shows you that how powerful Etsy was and how loyal their merchants, but also their consumers are. If you're able to fight off Amazon, I think you'll be doing well in the future going forward. Yeah, no kidding, right? That's been a really successful e-commerce play.

And they are moat making right now. I mean, it's not a small company. What is it? 30, 40 billion in market cap um i'd have to yeah around there around there so it's not a and it's really it's really easy to use too you don't even need to create an account you can buy as gas you um i've used it for a few gifts during the holidays too and i got my things it took a bit more time shipping because i bought from the u.s although i was trying to buy a bit more local,

but that's one of the other things that's so good with them is you can actually have the option to buy from your local area too. Yeah, yeah. I've used it too and bought things from Canadians in B.C. and Ontario. I like it, man. It's cool, and people sell cool things. And if you have a hobby and you want to sell these crafty goods, where are you going? You're going to Etsy. So they're already creating a strong brand foothold, but also developing one of these

network effects that we've been talking about. Network effects is part of the stratosphere score. I look at every company that's in the database, and I evaluate if they have network effects. If they have network effects, they get extra points, and that is a qualitative measure that goes into the stratosphere score. So if you haven't checked out what make up top picks, and network effects is part of that. Go to getstockmarket.com, G-E-T, stockmarket.com.

It'll bring you right there. Trial is completely free. We will see you guys next week, guys. Stay safe out there. And by the way, if you are new to the stock market, it is not this easy. Take care, guys. Bye-bye. The Canadian investor is not to be taken as investment advice. Braden or Simone may own securities mentioned on this podcast. Always make sure to do your own research and due diligence before making investment decisions.