The Canadian Investor - Finding value in today’s stock market with Andrew Sather and Dave Ahern

Episode Date: October 14, 2021

In this episode of the Canadian Investor Podcast we interview our friends from the Investing for beginners podcast, Andrew Sather and Dave Ahearn. We talk about current stock valuations, where they think value can be found in today’s market and more. Tickers of stocks discussed: ADYEY, ADP, PAYX, CRWD, PYPL, MSFT, TSLA, FB, AMZN, AAPL, GOOG, V, MA, PGR https://einvestingforbeginners.com/top-investing-podcasts/ https://thecanadianinvestorpodcast.com/ Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital See 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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from the Investing for Beginners Podcast. I've seen Andrew and Dave, you guys are climbing up the ranks on Apple Podcasts. So congrats on the success. Do you guys want to give yourself a quick intro? I've been on here before. My name is Andrew. I started a podcast with Dave and I just really love looking at financial statements and businesses and hopefully teach along the way as I'm learning. Yeah. My name is Dave, a self-taught investor like Andrew, and I just love talking finance. I love trying to help people learn as much about investing in the stock market and finances as they can. Yeah. You're an experienced investor teaching beginners, and that is very appreciated because everyone does start knowing nothing. And I know that you boys are excited today to talk

about things that are not necessarily entirely beginner concepts, because we talk about pretty much everything. If you're listening to the Canadian Investor Podcast, we talk about beginner, intermediate and advanced stuff. And Simon, you are here as well. Yeah, I am here. I am here. And I'm excited to interview Andrew and Dave. I've been listening to their podcast for quite some time. So it'll be interesting to see what you guys have to say today. All right, let's get right into it. First question, and this is kind of an open discussion, brainstorming session, but where do we think value exists today? I mean, many people think the market is crazy expensive. That certainly can be up for debate. I think it depends where you look. But let's go around the

table and discuss some themes, sectors, perhaps even a specific stock. We think that today can provide value in a market that does trade at historically high valuation multiples? Well, I guess for starters, I like Microsoft. In general, I like leaders in their industry. And if they're not leaders, at least top two, top three. I tend to invest in more matured industries, but definitely companies that are still growing and able to bring a lot of cash back to shareholders. So to me, if I'm looking at... And it's all relative based on interest rates and discount rates. We can get into that some other time. But as far as where value is, I really think it depends on where the sentiment is at any given point in time and how industries are perceived.

any given point in time and how industries are perceived. And I think there's some industries that have done well for a long time, but they almost come second place to other industries that are maybe newer and more exciting. And so those get all the hype, but there's still really good businesses, really good industries. I'll give another example, like the payroll industry. Historically, it's been something that investors have always, always loved because you think about switching costs and how hard it is to update your payroll. And so back in the early 2000s, these were companies trading at like 45, 50 PEs because people knew these are switching costs. Even during a recession, people still have to pay their employees.

Most businesses are still alive during a recession. So that was a new concept a couple decades ago. It's still very prevalent today. It's just not as much of a new, fresh concept. So they're relatively cheap now, and there's some good players in there. When it comes to payroll, are you thinking Intuit? Intuit could qualify, but I'm thinking more of the traditional like ADP and paychecks. Got it.

And as somebody that has gone through changing, when I was running a restaurant, we changed from ADP to paychecks. And I can tell you from experience that the switching costs, it's real because that was probably one of the hardest things I've ever had to do. And so it's the switching costs. It's a real thing for that. Yeah, that's good. Dave, did you have some industries on your end that you see like some potential value right now? You know, I'm kind of like Andrew. I tend to look company by company as opposed to industry by industry. Lately, I guess the last six months to a year, I've really gone down the payment slash fintech hole and it's gotten quite deep. I'm not going to lie.

You might need a shovel. Heading out is difficult. Well, I don't know if a shovel, I might need a ladder. I mean, you might have to lift. Maybe two. Maybe both. Maybe two. Maybe both.

You shouldn't see the smile on Brayden's face right now. Yeah, I know. Maybe with a shovel, you can dig steps out of the hole. Yeah, maybe. Maybe not. I don't know. So for me, it was kind of a natural evolution because I did a lot of work when I first started learning about investing in insurance companies and banks.

And so financials, just as something that's kind of always spoken to me, and fintechs and payment companies, it's just an extension of banks. And so financials, just there's something that's kind of always spoken to me. And fintechs and payment companies, it's just an extension of banks. And so the whole idea of them makes sense to me. So a couple of companies that I have come across that I have really, really liked, and the more that I've learned about them, the more I really, really have been taken with them. And the first one is a company from the Netherlands, Agen. It's a payment company out of the Dutch payment company. And it's about a $93 billion market cap. And it has been primarily in Europe, but they're a global company. And they started, well, they've been in the United States for about 10 years, but they've really branched out. So they have some big hitters for companies. They really kind of focus on the larger enterprise systems. So Facebook is one of their clients, as is Microsoft, as is Netflix, among others. And so they've done really well. Airbnb had just recently signed a deal with them. So they're a big player. And the thing that I really like about them is they're founder-led.

They are very much about taking care of their employees. They have 1,964 employees right now. Every single one of them has to spend at least half an hour with one of the board members before they're hired. That is very unusual, especially for a company that size. They spend a lot of time working on, most of the companies work from home for the last two years because of COVID. And the way that their system is set up, it's actually

very, very beneficial for them. They have a lot of great benefits that they offer their company. They do offer a share based compensation, which is something that can be a little bit controversial, but it's not exorbitant and the management is not overly compensated. And so there's just a lot of great things about the company. They're very, very, very passionate about their employees and they're very passionate about taking care of their customers. And kind of like Costco, like we were talking about on our show, they've kind of reversed the method. And the other thing that I really liked about them, this was kind of cool. So their last earnings call, it was the director of investor relations, the CFO and the CEO, and they just answered questions.

They sat on a couch and they answered questions. So they had a video of it and it was super cool. And I was like, wow, it was so laid back. It was so unusual. And I was just kind of really taken with that. So I've never invested in a company outside of the United States before looking into this company. So this is kind of something new for me, but you know, I've, I've really dived into the squares and the PayPal's and, you know, a lot of those companies,

I own PayPal, you know, full disclosure and I love the company, but the other company that I've really, really, really fallen in love with, and this is going to make our friend Braden very happy, is Visa. The more that I've learned about the system and how it works. And other than actually Bitcoin, I don't know that there's anything out there that can really disrupt it at this point. And it just really, the margins and everything on it, it pays a dividend. There's just everything about it. Like you were saying on our show, you could literally run the company with 10 people. And when they turn the lights off, it's still making money. And just the way the company is set up, it's crazy.

The protocols that they invented in the 70s are still in use now. And it's one of those companies where you look at it, it's just kind of like a duh. So yeah, yeah, big fan of those. Bank AmeriC it, it's just kind of like a duh. So yeah, big fan of those. Bank, AmeriCard, how it all started with the credit cards. They're kicking themselves now, aren't they? Really wish they did not mess that up as the market cap is bigger than all of them combined. So yeah, and I like that you brought up Adyen. That's right, dude.

They're a beast. And a lot of those fintechs are a beast. It's very similar to a Stripe, which I talk about on this podcast all the time. Not public yet, but I mean, they're very, very similar type businesses. And I mean, got to give it to some of these European startup founders. They just run companies really well. And there's a culture of niceness and innovation, like Eck from Spotify or the Collison brothers from Stripe. Some of these European fintechs are really awesome. And yeah, Adyen's been on my watch list for probably too long. I need to do something about that.

Yeah. The interesting thing to geek out about that a little bit more is Europe really seems to be the leading edge for a lot of this, especially London. London and England, there are so many fintech, payfac, all those different kinds of companies. And they just really seem to be more on the leading edge than they are here in the United States, for example, which is kind of interesting. 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.

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. I guess let's move on to our second question

that we have for you guys. So what do you think of the actual high quality, high mode software businesses? But, you know, we're seeing right now they're trading at really high multiples. I mean, you could even say nosebleed prices. Are the valuation multiples like warranted due to the switching costs, network effects, high margin and growth profile? Like what are your thoughts? Let's say, let's start off with Andrew. So what do you think about those? And I guess more broadly, the high valuations in tech.

That's a loaded question. I'm very happy that he really, really is. So can I go on like a quick lecture on discount rates? Of course. When you look at the high valuations and everybody wants to make a fuss about high historical valuations, but if you go down to the foundation of what a valuation of an asset is and why stocks are priced a certain way, stocks are going to be more expensive when yields are low. You want a higher return when you take higher risk.

So if I'm comparing a stock and a bond, a bond is more reliable, safer cashflow. And so depending on how high those bond yields are, maybe investors are going to put more money in stocks and more money into bonds. And so you can take that logic a step further. And when you look at companies, it's a similar thing where you might have one company that's earnings and cash flows are all over the place. Another company has just stable, recurring, very safe cash flows. And so you're willing to pay a higher premium for the company with more stable cash flows than you would a company that has these cash flows that go up and down. And so the way that we do that in finance is with

the discount rate. And so basically the higher the discount rate, the more risky, I put that in quotes, the more risky the cash flows are. And so when you have a higher discount rate, that means you want a lower valuation. You want to be paid to take on that extra risk because the cash flows are more risky. But that level changes depending on what interest rates are. So when interest rates are rock bottom low, like we've never seen, well, your alternative is to go into bonds where you're not going to earn anything anyways. And so that drives the discount rate down, which means the valuations have to come up. And so you have to take that into consideration when you look at valuations today, is that we've never seen price earnings

multiples like this ever. We've also never seen discount rates like this ever. And so that has a big impact on some of the nosebleed prices. That all said, though, you could plug in some discount rates on some of these stocks that are out there and you still will not get anywhere near what any person who teaches valuation would say is a fair price for a company. And so those are the ones that you have to worry about. And I don't care if it's the most fantastic businesses in the world. I don't care if investors think that this business is going to last forever and it's going to keep all their customers and it's going to raise prices forever. That's not the reality. If you look at how businesses have been over time, moats eventually erode. And so you need to pay a fair price for

whatever stock you're looking at, regardless of what the business is. So an example that, going back to the early 2000s, eBay was a company who was said to have an impenetrable moat. And it really did. I mean, it still does. It's still the best auction website. The problem is nobody does auctions anymore online. They all just go to Amazon. So you have to be careful. We're doing auctions for NFTs these days though, Andrew. Get with the times. Sorry. Should have invested in the eBay of NFTs. You got to take that into consideration. But I think when you just blanket statement and say all companies are trying those valuations, it's not fair because there are some companies that seem expensive,

but they actually have really stable cash flows. And so they do deserve those higher valuations. And that comes down to the discount rate and the free cash flow. Okay. But to add to that, I mean, specifically, I'm curious what you think about underwriting something like, you don't have to know these companies well, but like a CrowdStrike or a Shopify. They're growing revenues at 80 to 100% year over year, but trade it like 60 times sales. Does that make you feel very uncomfortable even given the growth? Or do you think that there's something really to that? Because if you look at the past couple of years, they've traded at those multiples this whole time and you've made a

hundred baggers. So I'm just curious and there might not be no right answer. I'm struggling with it myself is trying to properly value these things and figure out if I even can. Yeah, that's tough. And that's kind of why I don't play in that field. It's kind of similar to venture capital. You have businesses that are growing thousands of percent, but one out of maybe 50 or 100, they're actually going to be the next Uber or the next Amazon. And so it is very difficult. And if you're going to play in that field, you really have to diversify over a lot of different, those types of growth companies.

And the ones that are going to give you big drawdowns, you got to have the one that's the unicorn that pays for all of your losses and then some. Yeah. I would probably agree with a lot of what Andrew was saying. One of the things that I guess that has really helped me identify and think about some of these ideas, a book by Michael Mobison called The Base Rate Book. And in the book, it's a PDF that you can download for free. And in the book, he breaks it up into different sections. And he talks about basically the numbers of net margins, revenue growth, operating margins, ROIC, and some of those kinds of things. And he and his team basically took the stock market and broke it down into different groupings of revenues, sizes, or market caps, and then looked at the reality of

how many of these companies actually do some of the things that sometimes you see people project. So a company that's going to grow at 50% over the next 10 years is, as you go up the ladder of market caps, it starts to dwindle because just the sheer number of companies, a company like CrowdStrike that you mentioned earlier, it's smaller than Microsoft, who is one of their competitors. So the ability for CrowdStrike to grow at the rate that they're growing, it will for the next few years, for sure. But is that likely to do it over 10 years? I don't know. I would argue, sorry to interrupt, but I would argue we don't even know if they'll do it over the years? I don't know. I would argue, sorry to interrupt, but I would argue

we don't even know if they'll do it over the next couple of years. And that's kind of what Mobison was talking about is the correlation between revenue from year to year is so random at times. So it's really hard to project. No, it's okay. It's really hard to project, but it goes to operating margins, all the different metrics that he looks at. And it was really enlightening to me. And so one of the things that I think I took away from that is looking at some of those things. Price to sales is not something I pay much attention to, honestly. I look more at the financials of the company and what I think it will grow to if it gets to what the rest of its sector is.

And I'll give you an example. Amazon in 2000, my guru for investing for finance is Oswald Damodaran. And he gives these free classes and he had his whole lecture on Amazon and embalming Amazon in 2000. And he projected that eventually the on Amazon and embalming Amazon in 2000. And he projected that eventually the company would get to operating margins of around, I don't know, 10%. And he was off. They got to 20 in the 10 years. But the point is, is that he took it from a very negative company to a profitable company. And it was still trading above that price.

And he chose not to buy it at that time. He revalued it about five years later and he ended up buying it then because he felt like the valuation was better at that point. But it was really illuminating to me because you could see the evolution of a negative non-profitable company when you look at the bottom line to a profitable company after a 10-year period because you could see things like the company growing its revenues, growing its operating margins, and reducing its cost as it continued to scale up. And so when you look at some of these companies that you see in the stock market today, I look at those and try to look at something like CrowdStrike

and go, is it logical for me to see that those operating margins are going to come in line at some point where that company's got to be profitable? And I've bashed on Tesla more times than you've probably ranted and raving about how great Visa is on our podcast. And one of the things that... I love the car. The car is amazing. But when you look at the financials, it was a mess until about a year ago. And even now, the profit margins that it's squeaking out are not that great. And so – It's a car company.

Of course they're not. Well, it depends on who you talk to. too. But the point is that you have to project to a certain extent with reasonable facsimile of where you think it could be in the reality of valuation. You could be wrong. And none of us are fortune tellers. We don't know what's going to happen in a few years. But if you look at history and you look at other companies in the industry that it's operating in, you can sometimes make reasonable assessments of where you think this will land. And if it's a market leader and it's a special company, then obviously you can project above that. But it all comes down to kind of trying to be realistic about where you think the company is going to be at a certain point. Yeah, I think those are great points. Just to keep in mind that those

high valuation, it's really hard to project, you know, even just more than a couple of years. And even sometimes, like Andrew said, even just projecting the next few years, it's really hard to understand where the company will go and how quickly it will grow. And the one thing I did like about Andrew, how you were saying how the bond yields are so low. And I think not to get too much on the macro side, but I think those low bond yields, so low. And I think not to get too much on the macro side, but I think those low bond yields, I mean, they're pushing people to more risk assets, right? So we're seeing these high valuations for tech stocks because people don't really have other options in their mind to be able to keep up with inflation and their purchasing power. And I don't want to

change this to crypto discussion, but you're seeing the same thing on the crypto side where, you know, people are getting into these shit coin, like anything outside of Bitcoin and Ethereum, if you'd like. And it's even more the wild, wild west, but it's the same kind of reasoning, right? People are pushing themselves even more on the risk curve. And when you can't really project that far out what a company or an asset is going to do, I think that's where you get into trouble. And Brayden and I have struggled with that a lot. I love Shopify, but I've never gone around to buy it because I just can't wrap my head around the valuation. And yeah, you guys, I think, really touched the point on

that. It really comes down to what you're willing to underwrite a few years out. And it's difficult to do. And that's what makes some of this stuff tricky to do and why I don't even bother with running discounted cash flow statements. I just can't build one that is successful and repeatable. So I keep my models really extremely simple and have found better results. So I think that that's a good discussion. And there's not necessarily a right or wrong answer to valuing these things. But it's interesting to see how all four of us

were sitting here and thinking it's difficult to value some of these things that are super high growth. So yeah, fair enough. But you know what, when it comes to software and tech, I think this transitions really nicely into the next question, because let's talk about companies that are absolutely massive that are not trading at crazy multiples. And five, six years ago, I think many of us, including myself, were idiots for thinking that they were expensive. I mean, if you looked at Amazon yet, Jeff was doing everything in his power to make those statements look like junk. If you dig deeper, you could see that this business was a beast and about to just have operating leverage that would make your head explode. So I mean, let's talk about FAM.

Facebook, Apple, Amazon, Microsoft, Google. These are trillion dollar firms. Can they keep going higher? What's our hot takes on this? I don't think they're expensive, personally. Well, if you want to soundbite, I don't think Amazon can. And that's just simply from the numbers because at the growth rate, if they continue, they'll be the world's economy, so they can't. Microsoft, on the other hand, I just added to them recently. And we get this

sense that they're so big that they can't continue to grow high. But if you remember, a company like Microsoft has such high margins, they don't need to grow that much in revenues in order to continue these crazy growth rates. So the world has enough revenue for Microsoft to grow at high rates. And don't get too hard on yourself. I don't think most of us could have predicted that Amazon and Microsoft could have all of this crazy empire building they're doing with their data centers would become this incredibly massively profitable

cloud industry that we know of today. And so when I look at somebody like Microsoft, and you have to ask yourself, is the whole move to data and data consumption, is that still in the early innings? I can't remember. We've been recording for a while. I don't know if we're talking about Tesla in this episode or in the previous. We were just talking about it. All right, cool.

We've got a lot of times warping here. But I finally got to drive one. And if you've ever been in there with the tablet that's on the screen, it is constantly scanning all of the traffic around you. And so as you have cars driving by you, these cars are appearing on your screen. So you can imagine all of the data that they're generating, not to mention all the data we don't know they're generating. So are people going to use more data as time goes on? Are they going to need these data centers as time goes on? And what does that mean for Microsoft? I think it means a lot of good things. 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. We talked Airbnb.ca forward slash host. We talked about yesterday in our secular trend, Simon, just the biggest high conviction secular trend is people are going to be using more data per capita. And we're going to underestimate how much we're going to use. And I think that that's a trend to definitely ride on. How about you, Dave? Yeah, I would definitely agree with that. The thing I guess I would maybe argue a little bit with Andrew's idea is AWS inside of Amazon is kind of its own beast. I would wonder if they ever did separate those, if that would be the one that continue to grow, whereas the retail side, air quote retail side, would probably not hang as much. The company that really kind of intrigued me not too long ago, I ended up pulling the trigger was Facebook.

was Facebook. At one point, it dropped to a 26 PE, which is just, when you look at, if you took the Facebook out of it and you just looked at the financials of the company and you looked at all the different margins and revenue growth and costs and all that stuff, you'd be like, holy crap. I mean, it's stupid. And like we were saying earlier, Mark Zuckerberg is 37, slacker. Get to work, Mark. Yeah, get to work. But you look at the numbers, and it's ridiculous. And I was trading at a 26 PE. And of course, I think I was trading around $250 a share.

Now it's like around $350. So of course, I'm kicking myself. But some of the things that I think could derail some of these companies, I don't think it's the business and I don't think it's the operations. I think it's going to be more social pressures, whether it's regulation or whether it's government or whether it's just socially people just go, no more of this, you know, because how many of us have, you know, has it caught you off guard when you're talking to your fiance, Simon, about a wedding gift and she's looking up it on her phone. And then an hour later, you pick up your phone and the same things are popping up on your phone. It's kind of creepy. And, you know, so, you know, I know it's all coming from data and I understand how they're all doing that, but some of those things, you know, could they go too far? I mean, I watched that Netflix documentary.

That one's creepy. The companies themselves, we were talking about Google earlier. Google's a monster. I mean, just the sheer things that they've done. You just take YouTube out of the whole equation alone, and that's just a beast. And you look at the Google Cloud and the Google Ads, just Googling has become a thing. It's a verb now. I mean, how many companies can say that about the company, you know, to Google something? Well, you know, so yeah, they're ridiculous. They're all ridiculous. Yeah, I probably would agree with all three of you. I think there's still some growth left for those big tech. I mean, we haven't talked much about Apple either. Apple, I think,

has done a tremendous job to really leverage their ecosystem and really push the service side and the reoccurring revenues. And, you know, they just came out with their announcement this week with their new iPhones, iPhone 13. And you have the new iWatch that's going to come out. And they're really just incremental. But people still want to buy those phones and those gadgets. And then they're sucked into that ecosystem and you know people were laughing at apple when they came out with apple apple tv plus but you know what i love ted lasso so i don't know if you guys have watched it but they've they've come out

with actually some pretty good content and i got a free subscription and i'm considering renewing and actually paying for it but But I'm going to say, like Dave, I think where there's a bit of uncertainty is definitely social pressure, regulatory pressures as well. I mean, there's a bit of risk there, but I think if I were to bet on them, I'd be betting that they'll continue growing for the foreseeable future. I mean, kind of just to piggyback on that, if they do split up some of these companies, shareholders will be just fine. Unlocked.

Yeah, exactly. Yeah, like new entrepreneurial cultures. And some of these things, like you take Google and YouTube, they're both going to be strong even if they're not a cohesive unit. So yeah, totally. Yeah, I saw somebody on Twitter a while back say,

you know, why don't we all just buy the Fang stocks and go play golf? I mean, what are we arguing about all these other, you know, peon things? Let's just buy Fang and go play golf. Braden's already on that. Yeah, it sounds like a great idea. He's already doing it and playing golf.

I played golf today before the show. He started before we recorded the show. So I'm feeling good about that idea there, Dave. Okay. So when you look at these mega tech companies, we can all agree they still have a long runway for growth. The business quality, the network effects, the switching costs, the profitability, their ability to... What did Microsoft... Andrew, you probably know, you follow the name. What did they just announce? A $60 billion buyback program and raise the dividend to 12% or something yesterday?

11%. 11%. So, I mean, they're just printing cash. All right, let's go around the table. Let's start with you, Dave, and then Simon, and then Andrew. From here, I know I'm putting you on the spot. Does this group of mega tech trillion dollar firms outperform the market? Yes or no? Yes. Over the next, let's say three years. Yes. I could say for three years.

I'm going to say no. Simon's getting, okay. Simon, care to explain. I'm going to say no. I'm going to say no. Simon's getting, okay. Simon, care to explain. Yeah, care to explain. I mean, I think, obviously, I think they'll perform quite well. I just think there's some new areas, some really exciting areas, whether you're looking at even like payment processors, you have a lot of companies that are coming out with a lot of interesting offerings when it comes to that whether you're looking at a square paypal visa mastercard obviously the more established players

there's a lot of interesting businesses that are are coming up that i think may outperform these uh the big tech big tech i don't think it'll be i think it'll be pretty close but i i think i just wanted to to go against the grain as well. Yeah, fair enough. You're like, shit, now I have to come up with a hot take here. I mean, let's not kid ourselves. Those five names now make up so much of the index weighting themselves. So perhaps it's a silly rhetorical question, but I mean, at the end of the day, I mean, this is another question that we're sitting here wondering, like, what are we doing? Why am I not buying these names and just going to go play golf? So I mean, do you want to bring us to our last topic for the day?

Yeah. Yeah. So our last topic is some exciting secular trends. So do you guys have some secular trends you're looking at in the next few years or decades that you think create some really good opportunities for stock investors? And do you want to give us one or two each, maybe starting with Andrew? Sure. I mean, I kind of talked about it already, but really data, not just data consumption or data generation, but data as a moat. data generation, but data as a moat. And so you're starting to see that now. And Dave hates Tesla, but one of the bullish cases for Tesla is they're so vertically integrated and they're collecting just massive amounts of data. And we're seeing now the effects of all this data that Google and Facebook have collected on people and how that's really, you just look at the revenues and then see what that's done for them. And so I think you can start to see that.

And I think it can start to be applied in a lot of ways, just outside of what you would think of just a standard tech company. So I still get excited about car insurance, to be honest. I mean, Progressive is a fantastic company. They are outside of Geico. They're like solid number two. And they have that same, they have this very similar model where they're very much more direct than their competitors, where they sell directly versus through an agent. And so that's a low cost advantage. And they've been trending that way. And they're also collecting just tons of data as well. And they continue to use... The company's IPO-ing in that space. They're all plugging into cars and collecting that data. Progressive is doing that along with them. And so I think you'll see

companies like that who continue to collect data and use that to make better business decisions and make more profits and really help everybody who's involved. I like that second level thinking. You're looking at these are the companies that are collecting data. Who are the perhaps unknown, potentially underpriced benefactors of that trend? And we talked about that a bunch, Simon, is with Equinix, American Tower, SBA Communications, Digital Realty Trust, those companies that house these data centers that the AWS and Azure's have to actually live in, those companies massively benefit from this trend as well. And it's not one that comes top of mind right away. How about you, Dave? What are you thinking about with a large secular trend that you'd

be happy to say you have high conviction in these days? I think I'm going to throw a few at you. So the first one obviously is the fintech thing. I think that the pandemic has changed the way we bank and the way we use our money. I know one of your favorite phrases is cash is dead. And it really is. I think the way that we pay for things now has changed so much. And the rise of buy now, pay later, I think is an indication of things that are changing. This is an old idea that's been repackaged and now is being

offered to people in a way that's different than it was in my parents' day. And what I'm talking about is layaway. It used to be that you could go in and pick these things out, pay for them, and once you're paid for, you got them then. So you didn't have to put $200 down for a TV back then. And now it's reversed where you get the product and you could pay it off in installments. And so I think those things are going to gain more and more traction, especially with the younger crowd. And I just think that just a lot, not just those ideas, but just the way that we bank and the way that the banks have treated us. You know, I can say this because I worked at Wells Fargo for five years and I know how the level of customer service. Now, the people I work

with, I didn't even listen to them. They were great, but it wasn't always that way. And I've been to banks where I've gotten bad service and they just don't give a crap. And so these companies like Square and PayPal and Adyen and Stripe and all these other companies, they're just making it so easy. A perfect example of this is I read somewhere the other day that it was quicker to open an account on Square than it was to pump my gas to pay for me to pay for the gas. So when things get that simple, it just becomes more and more of a thing. So there's that grouping of things that I've spent a lot of time looking at.

The other thing that I think is going to be a big thing is going to be the change in how power is generated. So you guys are talking about the data, and that is obviously going to be a monster thing, but that power has to come from somewhere. And I think the evolution of what's really going on, and I'm not talking about the government forcing this on us. I'm talking about the way that businesses are really driving this. Somebody like Warren Buffett was way ahead of the curve on solar energy and wind power. He's got huge farms in all over the country, and that's been a huge part of Berkshire. And as he and Charlie move to the next stage of their lives, that's really going to be one of the things that's going to drive Berkshire is those investments. And so I really think that

solar energy and wind energy are going to be huge, huge things going in the future. And the third thing is internet security. I was recently reading about CrowdStrike, and I'm not saying that this is a company that I would buy at this point, but something that was really interesting that came up in that article was ransomware as a service. So these companies that are out there hacking into these companies, last year they made $156 billion worldwide. That's insane. And that is just, and it's rising. And so as more and more of us get online and adopt all these things, that's going to become a bigger, bigger, bigger

part of our lives. And some of the legacy tech, like the semantics and the McAfee and stuff like that, they're keeping up and something's, you know, the good guy has got to figure out a way to keep the bad guys out. And as more and more of us adopt the cloud and come online, that's going to become a bigger thing, I think. Yeah, no, I think those are great secular trends. Obviously, Brayden knows that I was probably going to say the renewable power angle, as you said, with wind and solar. And I'm a big believer in that, and especially because the pricing of those has become really competitive compared to the carbon fuels in the past few years. So now, I mean, you're seeing, yes, governments and businesses are pushing for that more,

but it also makes a lot more sense economically. And we talked about that in our recording we did yesterday as well. Another big one for me is infrastructure. We saw it in the U.S US with the infrastructure bill, but I think we're seeing infrastructure investment across the world. It's not just in the US. It's not just in Canada. We're seeing that in Europe. We're seeing that in Asia as well. So I think that's going to be a big secular trend as well. Brayden, do you have anything to add to that? Yeah. One thing that came to mind as I was listening to Dave's ideas there in the square

example, being able to download it so quickly to your phone and these companies that are innovating on top of this system that we've built that when it comes to banking in particular and some of these incumbents in different industries, the innovators are doing something really specific. They are reducing friction, whether it be reducing friction for enterprises or reducing friction for consumers in a B2C business. That's what it comes down to is the ability for you to be able to use their service, not only download it for user growth, but also being able to actually accomplish the things you want to do. They make it so simple. And for most people, you've struggled, you've used the technology on an old incumbent,

maybe your banking system's kind of bad, or you've used a government website that's built on web technology that was developed in 98. It's very heavily... There's tons of friction, and the whole experience sucks. And then these new companies come out and they just make it so easy. And that's where all the value is. And I think that that's where they continue to innovate and beat the incumbents is reducing friction. So that's one thing that I thought of immediately with both your examples. whether it's Square, PayPal, Visa, MasterCard, I mean, they're not staying on the sidelines. They're actually investing in those technologies. And I won't go on more than that, but they are investing a lot more

than the traditional banking system. And I like to see that just because it shows they're not afraid of trying new stuff, trying embracing new technology. And I think they're, you know, big banks, whether you're looking at US or Canada, I think they're looking for a lot of disruption in the next decade personally. Yeah, I think that's very fair to say. And on the crypto thing is, look, it's out there and people are paying attention to it. And I think

ignoring it just becomes a bit of a mistake at this point, whether you believe in it or not. I think that it's caught enough steam that it's definitely worth paying attention to, whether it's with your capital or just with your attention, paying attention to some of this stuff I think is important. All right, guys, thanks so much for coming on the show. We really appreciate you. Andrew, do you want to give a quick handoff on how our listeners can find not only your show, but where you guys are hanging out, whether it's Twitter or your website. Yeah, I appreciate that. So our podcast, the Investing for Beginners podcast, we go a lot more in depth on our blog. So you can find that at einvestingforbeginners.com. We've got tons of stuff on valuation, accounting, and normal stuff

too. So Dave and I like to write and we write a lot and you can get a lot of our thoughts on there. And Dave is running our Twitter. Where's that at now? IFB.podcast. IFB podcast. You guys have a weekly episode on investing for beginners? We do. That's correct. Every Thursday. Every Thursday. So go check that on your player. Thanks again so much for coming on the show,

guys. If you are listening and you have not checked out Stratosphere, you have to do it. If you want to find financial statements, metrics, it is so simple. We're talking about reducing friction. This is reducing friction. You get all your data in one place. Yeah, you guys like that, eh? Go to getstockmarket.com or stratosphereinvesting.com. Thanks again, guys. And we'll have to do this again a little home and away. I know that both our audiences can get a lot of value from these types of discussions, not only what we're thinking about, but also what we're struggling to figure out ourselves because not everyone has all the answers. Thank you so much for listening. We'll

see you in a few days. Peace. The Canadian Investor Podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.