The Canadian Investor - How Important is Luck when Picking Stocks?

Episode Date: March 25, 2024

In this insightful episode of the Canadian Investor Podcast, your hosts, Simon and Braden, delve deep into the intriguing role of luck in the stock market and its potential effects on your investment outcomes. The duo explores the critical question of how much luck versus skill contributes to selecting winning stocks.  Further, they shed light on the often misleading nature of historical returns, particularly focusing on the total returns of stocks that have shown exceptional performance over long periods. Join Simon and Braden as they provide a fresh perspective on evaluating past performance and the unpredictable element of luck in investing. Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Sign up for Finchat.io for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.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

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. The Canadian Investor Podcast. Welcome into the show. My name is Brayden Dennis. As always, joined by the graceful Simon Belanger. Buddy, we are back in the saddle. You and I haven't sat down and recorded in a couple of weeks.

I'm pretty pumped. I was just on a trip through Southern California and I had never been to California before. I had never even been to the West Coast. You've never been either? I've never been either. No. Yep. As East Coasters, it's just like so classic to go to florida 400 million times before you know you venture anywhere else in terms of going somewhere warm but i liked it man i mean there's it's what's not to like the weather is the hype about the weather is real like you wake up and you're like oh it's perfect again great i mean i I've been to Vegas multiple times. I've been Vegas like six or seven times, but that's because I enjoyed playing poker, but never made the trip to California. Although Vegas is very popular with Californians because I think you can drive there in like four hours or fly in like less than an hour.

That's right. You can just drive. That's right. You can just drive. And I actually, I played golf with some guys who, some younger guys, and one of them goes to the university of, it was spring break. So he goes to the university of Las Vegas and then he was back in San Diego to golf. And I was playing with his two buddies. They're San Diego state D1 golfers who are going to be going pro okay yeah and one of them just casually shot a 66 and i didn't even know like that's how good he was i didn't even notice he was six under you know through 14 holes like it was absolutely absurd just playing with that level of of player and just kind of tapping into their mindset too just like so intense such

a young age and so committed to the game like it was pretty it was pretty awesome yeah i find it's interesting with athletes i was um like i've noticed that like the past few years where i find you have two types of personalities you have the ones that are like so intense, like you said, they're so focused on it, like it's their job, like they'll do anything. And then you have the other kind that are equally as successful, but for them it's all about having fun. And if they stop having fun, the performance actually goes sideways. I don't know if you've noticed that too, but there tends to be like,

in a lot of athletes, it is like that. You have these like, you know, like you said, like super business focus. And then the other ones that, you know, they put in the word, but maybe differently a little bit. But for them, if they don't have fun, they lose all interest and the performance goes sideways too. Yeah, I think that that makes sense, right? Like it's like anything, you know, if we didn't have fun doing this podcast, what are we, what are we episode like 375 now? Like it's getting kind of absurd.

Yeah, like if we didn't have fun doing it, we still wouldn't keep doing it. All right, I got to tell you about someone I met. I'm at a conference and I meet this guy and I'm obviously going to keep him anonymous for many reasons. That's fair. Yeah. He was telling me about this fund that he was co-managing in 07 was 5X levered. It had $20 billion, but it's 5x leverage so the the aum was a hundred billion in total

it blew up of course with that much leverage going into 08 the entire fund was just a few hundred million dollars from 100 billion and this guy was telling me how he had to save the fund. The other guy left and he actually recuperated back to 6 billion AM before he moved on. But dude, leverage, man. Just listening to this guy's story, I sat down with him for probably two, three hours at this conference. I mean, I was supposed to be meeting with all these people and I was just enthralled by this guy's story. We're sitting out on the patio at the Marriott Hotel and I'm just like learning about the ins and outs of the blowups that happened in 07 and 08. And of course, you know, you and I know about

them, but to get them firsthand experience from someone who was managing $100 billion in levered to the tits, it was, dude, I was like shook. I was like shook for like, you know, three, four hours after that combo. It was pretty awesome. Yeah. I mean, leverage, leverage, I mean, it cuts both ways, right? And especially in Canada where people, they probably are the most familiar with being levered if they purchase a home, right? And I don't know about you, maybe not as much because you're a bit younger,

but for me, the perception I got is maybe, let's say maybe not the last two years, but before that, it was basically like, you're stupid if you're not investing in real estate because you're essentially, you're not investing in real estate, because you're essentially, you know, you're buying with debt, you're leveraging it up, and it's boosting your profits. But it cuts both ways. It go when it goes the other way around, you can get wiped out because you're over levered. And whether it's real estate, whether it's investments,

investing in stocks, levered, obviously crypto, there was even more craziness happening during the bull market where it was like, I think we could get like 100x to one, something like that in certain sites. But I think it's a good reminder. Yes, you can really boost your profits if it goes well. But at the same time, you can also get wiped out. So just be aware because leverage is uh it's fun when it works and it's a disaster when it doesn't it's it certainly cuts both ways i think

that's a good good summarization of it dude have you uh last california thing have you heard or at least know about the burger franchise in and out i've heard of it but i've never been yeah i think it's only in seven states on the southwest coast of the u.s people have seen the logo and many people have listened or have been there and tried it out so the first one i i've heard of it i've heard it's very famous people go it's like a thing you go try when you're in california so the first one we saw in in la was near hollywood like the day of the grammys or the oscars or the dude i'm so out of touch i think it would have been the oscars recently i mean i don't know all i heard the movies one right yes the oscars yeah all i heard and i didn't even watch any part of it is john cena was almost

naked that's the only thing i heard about it but you can't you can't see john cena how did anyone know so i expect this place to be jammed because it's the day of the oscars in hollywood so okay this place is jammed it's probably all tourists uh-uh i saw several more and one including like not a touristy area nor like inner downtown san diego in kind of like not even like the best area and i kid you not the drive-through had 20 cars each line and there were two lines the inside was like an absolute zoo a chaos it's not like it's not tourists this is this is this is real people who live there and i've never seen anything like it the hype around this burger joint, the locals like stand by it. They love it. And I suspect there is no better unit economics per location of any fast food

concept in the world. Like I can't think of any location, location-based economics that compares to it, anything close to it. I was amazed. I couldn't believe it. I thought the food was extremely average, but people really love it. It gets you in and out, yeah. And it's pretty cheap. Like it's not, it's still pretty cheap. Like fries are two bucks, burgers $3.50.

Like it's not expensive kind of reminds me of because i have family in syracuse and we went to chick-fil-a over there same kind of thing there's like two drive-through lanes and you think the line is gonna be pretty long and within like 10 minutes you're like you have your food you've ordered and everything so they're pretty efficient i don't obviously i haven't been to that one but it kind of reminds me of that the way you explain it there's actually people on foot that come and take your order way way back yeah well they did the same yeah chick-fil-a too so i think okay yeah so i it sounds very similar yeah but it was so like America, just the whole thing is just so America. But dude, I would love to see the financials of this company.

It's privately owned. No plans of ever going public from my quick research. I would love to see this thing go public and get a look under the hood because it is a real phenomenon. It's unbelievable to be there and to look at it and to see people wait that long for a burger, frankly, I think is better at McDonald's. But, you know, that might be a hot take. Who knows?

I don't know. For me, I love my burgers just like chip trucks just because I find them like just you know the weird the meat doesn't taste weird it tastes like a burger at home and stuff like that and the fries are always the best I find at chip trucks but you can't replicate that as as much as you would with a chain right and the fries are always hot when you get it from those things oh yeah the fries the internet were legitimately not even lukewarm. They were cold. So yeah. 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. I liked your first topic. I have certainly my takes on this as well. I'm curious how you're going to take this one. Yeah, no. And so this was inspired by Jerry, who's one of our listeners from the UK. Big thank you for making the podcast international,

by the way. Obviously, we have listeners around the world, but the majority's in Canada. And his question was centered around NVIDIA and kind of the luck aspect around it. But I'm gonna take it a bit more as, how much does luck have influence on investings and whether you have good returns or not?

And his question, just to summarize it, was, you know, how lucky were people who bought NVIDIA around September, October of 2022 when it kind of bottomed because the valuations was still high at the time. Now, I agree the valuation wasn't cheap in a traditional way with NVIDIA trading in the high 40s on both a price to free cash flow and price to earnings basis. However, I will push back a little bit where that valuation, if you look at Nvidia, it was more like the last five, six years. It was definitely towards the lower end, but as a general rule, I mean, kind of everything tech was a bit down around that point in time. It's pretty much when I think

we bought them in 2022 for tech stocks and then everything getting started picking back up afterwards. And my view is that luck, there's a luck aspect obviously centered around that because you know, around the launch of Chad GBT and that happened in november 30th 2022 so clearly people that bought it around the bottom september october you know some people may have read or had information that something like this may be coming soon but i think you know to know what impact it would actually have on nvidia there's definitely definitely probably at least a decent or fairly large element of luck, at least to the investors that were probably not as well informed as some other investors in the AI space. And obviously, being able to anticipate how much of a, you know, kind of arms race,

I would say probably the best term to use here from the big tech company to build up the infrastructure needed to lose those large language models and what impact it would have on nvidia i think obviously that pro like that would have been very hard to foresee that i don't know what are your thoughts on that if you look at revision history on estimates the estimates skyrocketed right after this point when every analyst covering the name may have had insights into you know how cutting edge their gpus were i think that that was actually consensus across anyone who studied the the sector really well so it was it was well known that NVIDIA was leading it, especially with their compiler language called CUDA, that they were leading both the hardware

and the software when it comes to GPUs and how it will help AI. Because that's the way GPUs work, and it's able to do all those computations in parallel was just so much better than anything that anyone else had built. So people knew that they were the industry leader. NVIDIA stock professionally as an analyst, revision history on forward estimates skyrocketed once we saw the demand order and guidance from NVIDIA. So that was not consensus whatsoever, that there was going to be that arms race, that the data center was not only going to grow double year over year, but double quarter over quarter. That was not well understood by anyone. And so that's why the stock went nuts. So if you were to look at it back then on a valuation perspective, on a forward metric, it was incredibly, incredibly cheap. incredibly cheap. Now, where I don't think was lucky is people who saw those forward estimates and thought this stock is incredibly, incredibly cheap. Even after it had doubled last year,

it was only trading at high teens forward earnings. And that stock's like 3X since then. So I don't think it's lucky that people who are really paying attention to the tech and paying attention to the story on the data center. But of course, hindsight 2020, now two years later, it's pretty easy to see that there was going to be a compute buildup. Yeah. I mean, I think they were probably the way I probably see it. And I'm a bit different than you here is they I think they were probably right for the wrong reasons I don't think they first saw how quickly it would build up but they knew that you know maybe they had an idea of it would be a big tailwind for them but the

time frame obviously they they probably had more difficulties I mean I think we were seeing it with how the prices reacted and analysts and everyone so I think that's fair to say i mean i think just to extend i don't think anyone anticipated how quickly the build-up and the demand would be for those chips so that's where i mean maybe the luck aspect is a little bit there but again if someone invested then with the idea of honing it for like five, six, seven years, then I think the time aspect kind of negates the luck aspect a little bit, because then you're looking at it from a longer time frame, whereas someone who invested then and be like, OK, I'll invest for like a year because I think it's happening in a year. I think there is a much larger element of luck there.

Fair enough. And just to continue on the luck aspect aspect and maybe you'll disagree with me here but i did ask speaking of chat gpt what is luck so they responded obviously a more a longer answer but the first sentence i think sums it up pretty well luck is a concept that refers to the experience of notably positive negative or improbable events. So I think, do you agree with the definition? I think that's a pretty decent definition of luck. If I was to define luck- Or how would you? Yeah, Braden GPT. Well, I'll tell you what I think about luck later, but the way I define luck is encountering unlikely events to the positive.

I know it says here positive, negative, or improbable. I don't think of luck ever as like I got lucky and it was a negative outcome, but maybe by definition I'm wrong. I'm not sure. I would, yeah. I mean, I know what you're saying. For me, I would place unlucky and lucky kind of just the same. It's just opposite ends.

Right, I guess unlucky. Yeah, exactly. That's kind of the way I would see it. But personally, I don't think it's possible to completely eliminate luck when investing in a specific company. No matter how well you know a specific company, because there's always going to be an element of luck in an investment. There's countless examples of that, but I'll just say a couple here. I don't know if you remember PG&E, so Pacific Gas and Electric back in 2019, they had to declare bankruptcy because they were utility and they were held responsible for some forest fires in California. And typically,

utility is considered to be as safe as it gets, right, in terms of equity investment. And that's a bit of an unforeseen event. Obviously, it wasn't a zero probability because there was a small chance, I'm sure, no matter how small that it could happen. But there's definitely probably a certain set of series of unfortunate events that kind of led to that and having them file for bankruptcy. Another one is, you know, companies that got completely crushed because of COVID-19 and never fully recovered. I know some are still theirs. But if you look at, for example, the cruise ships, they are still operating, but they're definitely not in as good a shape as they were back then. Obviously, some companies did very well, some others didn't. Or on the other side,

companies that completely like took off and are still doing quite well today because of COVID-19 pandemic and how that's changed the way we work or interact and all these things. So those are kind of example to me that there is definitely an element of lug, but to be fair, there's definitely companies that will be more dependent on lug components than others. I mean, I think pharma like biotech companies, right, that are testing out these new treatments. I mean, they can do all the research day one, but until they start testing that, I don't want to say like, it's not a space I know super well, but there has to be an element of luck that what they're studying and they're kind of the research they've done already will

actually result in the expected or the hope results when they start doing all the testing. So I think, you know, my view is that there's definitely an element of luck in every investment. I think for some investment, it's incredibly low, but it's a non-zero impact. There's just things that are unforeseen or a very, very small probability that most investors would not even place any probability on that can happen and obviously that's where I think the luck component comes in but I think you can also mitigate that through diversification not only through single asset class like such as stocks so not only diversifying with just a lot of stocks but also different asset classes also allocating a smaller allocation if you think there's a bigger luck

element tied to the returns of a company. Another example I can give is a few years back with Virgin Galaxy, a lot of people were almost gambling on that, if you'd like. Well, I mean, a lot of things had to go right for Virgin to do well in the future. That was the Chamath SPAC, right? I think it was a- Was it a SPAC? Yeah. that was the chamath's back right i think it was a was it a spank yeah it was a chamath's back i think i said chamath's back he yeah he put out the four ipo a b c d i believe okay virgin galactic was one of them. Okay. And I mean, that's an example, but obviously I think the way I try to look at things is just assessing the probabilities of a unforeseen event or unprobable event, whatever you want to call it, because there are some events that whatever investment you're doing,

there are certain type of events that you probably are not assigning any probabilities. And I try to assign, even if it's a small probability, to just the possibility of my investment not doing well or incredibly bad because, let's say, there's a 2% chance of something unforeseen that affects completely their business. And I try to incorporate that when I actually make an investment in a specific company, if that makes sense. The book that I read last year, the Morgan Housel one, has a lot of good thoughts on this. I was thinking about that one. Yeah, yeah. In general, just like these extremely kind of random outcomes,

like random events that dictate so much of the future and are completely kind of unknowable. And impossible to predict. And I think there is that element of what we'll call luck or randomness or whatever you might wanna call it. That's definitely a factor and has a huge outcome on everything moving forward. And read Morgan's book. I mean, there's so many countless examples. Oh, yeah, I did. You know, I know.

You did. I mean, to the listeners, read the book. It has lots of good thoughts on this. That being said, there are a couple examples here that I'm thinking of, especially on the tech side, whether it's AI and video or whatever else here, the COVID example moving forward, a lot of stuff. There is a couple examples here where luck just, or some random event just brought forward a lot of momentum to a trend that was already already happening whether it was e-commerce or ai there's these kind of outlier events or launches or things that happen that kind of just like five years happen in two days among the like long trend that it probably would have gotten there regardless, just might have taken an extra five years. So there is situations where investors can position themselves

in a way for luck to happen to them or for outsized returns to happen to them or for a tail outcome so far out on a normal distribution curve to stumble upon their way. Like that's, that's how I think about luck when it comes to investing. No. Yeah, that's fair. Yeah. And I, I mean, maybe for me, it's also because I come from a bit of a poker background, right? And you have very few situations where like, I mean, there are certain situations that the, you know, the situation is done and there's not really a luck element because you know all the cards have been dealt then as long as you don't fold you'll will

then you'll win the hand but you know when there's still cards remaining even if you have a 98 chance probability to win i've seen the two percent happen so it's you you tend to remember the two percent when it happens against you you don't really remember it when it happens in your favor. But that's just the magic of the human brain. But I just found it fascinating because Morgan's book, I think, is great because he if I remember correctly, one of the things he says in the book is that there the probability of something bad happening is actually quite high. The probability of something bad happening is actually quite high because if you add in all the different probabilities that, you know, a hurricane might happen, the pandemic might happen, a major war might happen. If you add all these things, a solar flare might happen. Like if you had them all up, the probability of one of them happening is actually quite high in any given year.

Right. And it's like if it can happen on a long enough time horizon, it will happen. It's like the thing from Interstellar. There's some law in there, some space thing in there. No, and I think that this is directionally correct. Luck, in my mind, around career or things that you want to make happen that don't rely on a lot of outside forces to go right or some macro perfect storm to occur. I think of luck a lot differently in luck being surface area. And the same way that a fisherman tries to catch fish is if you're trying to catch fish and you have a net set up at your camp, it's lucky if a fish swims in there

during a short period of time. It's just not very common. But if you had a net that was 10, 20 times bigger, took more surface area, and was positioned in a more effective spot, you've now changed your odds of success. And so that same way that that net has a larger volumetric area for fish to swim through, luck is a surface area. And the fact that the more times you have luck being able to come across your plate, then you can increase your odds of success. And so when it comes to pure luck, say it's like rolling dice,

So when it comes to pure luck, like say it's like rolling dice, like there's nothing I can do really to change the odds of a standard normal set of dice. Dice, if I roll them an infinite amount of times, I'll come up with a distribution curve of combinations of how I could roll two dice. That's not going to change. That's like straight up just true statistics and mathematical probability where luck becomes a little bit more abstract is oh he just got lucky you know like that type of saying or that might be true but what people don't see in the background is that person expanding their surface area of luck to happen? So this is where it becomes like, you know, luck in a more, you know, abstract version of it

and luck in the like true probabilistic statistic version of it if I roll two dice 10,000 times. Yeah. No, and that's, no, that's, I think that's a good way to put it. And I mean, it's, maybe it's also like the way our brains think, right. For me, it's always like, I don't know why I just come back to thinking probabilities too. That's kind of what drives me a whole lot. So I always try to assign a probability just based on that. But I guess the last thing I'll mention is someone could do like, you know, we're thinking about a company,

they could do all the research. They can have the best thesis. Everything makes sense. Everything lines up. And, you know, something that's out of their control or unforeseen kind of happens that puts that out to the side, right? But I think at the end of the day, if you do the work and you have conviction in what you believe, I think more often than not, luck won't play a big part in it. I think that's probably the way I would see it. Yeah. 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 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. Moving on to investors that maybe got very lucky if they were able to hold on the whole time. Speaking of luck. Yeah, there's this graphic that's been going around

on LinkedIn, which has been, it shows nine companies and their total return since February 2004. And so that data is from February 2004 to February 2024. So as of a is from February, 2004 to February, 2024. So as of a month from now, a month ago as of recording. So 20 years of performance. And it basically shows how $10,000 invested in a bunch of stocks evolved over time. And it shows a bunch of huge mega winners that you made boatloads of money on, on just a $10,000 investment. And these types of backtest performances are not always particularly useful because hindsight is 20-20 and survivorship bias is a real problem when it comes to backtesting.

Survivorship bias kind of throws out a lot of the value you can learn from backtesting. And so why am I bringing up this graphic that's been going viral? Because I actually looked into the list and I thought that there was something more interesting than just looking at the list right off the gate. So then the companies are Apple, which would be total return. So this includes dividends. Your $10,000 investment would have turned

into $527,887. So over half a million dollars. I'm not going to read out the amounts of all of them, but in second place, NVIDIA, third place, Monster Beverage, Intuitive Surgical, Booking Holdings, Netflix, Old Dominion, Amazon, and Regeneron. So many of those companies you probably have heard of or know. For those who are not familiar with Old Dominion or Regeneron. So many of those companies you probably have heard of or know. For those who are not familiar with Old Dominion or Regeneron, there's probably the two smaller names. Old Dominion is a trucking company. It's very similar to a TFI International. Brad Jacobs, who started ODFL, XPO Logistics, beast, absolute beast. Was it Brad Jacobs that started Old Dominion? Hold on,

let me fact check that founder. Old Dominion. Was it Brad Jacobs? I'm not sure. I know he did the, he's a roll-up. He's a roll-up guy. I know he did XPO Logistics. Maybe not Old Dominion, frankly. Anyways, trekking company. Regeneron is a pharmaceutical company that uses, the description of it is a lot of big words that my brain doesn't understand. This list though, if you look at a lot of other companies that are just outside of that list, you have Axon, you have Domino's Pizza, some names that you'd be very shocked on their huge performance over the last 20 years. So what can we learn from this? What can we learn from the names that are on this list? Simone, when you look at this list, do you have any first thoughts right when you see it among the mega winners over the last 20 years? I mean, to me, I just find it a bit dangerous because a lot of beginner investor will see this

and then they'll try to get these kind of returns and not fully understand and then they'll navigate around like penny stocks to try and get the next you know apple because it was worth way less back in 2004 i don't know what the price per share was back then i guess split adjusted but i think that's the first thing that comes to mind because i know as well as you do, when I see this, I'm like, this is just a tiny fraction of the whole investment or stock investing story since February of 2024.

Really good point. Many of these companies have split many times over and that can be quite dangerous because casual beginner investors, like Apple is now, you know, hundreds of dollars. It used to be like 4 cents. These companies did not IPO as penny stocks. They IPO typically somewhere between 10 and 50 bucks back in the day, split them a million times and the math works out to four cents a share. So first point of being highly misled to beginner investors.

Now, I agree with you. There's not a whole lot to learn there. And then I thought, let's look at Apple, Nvidia, Intuitive Surgical, arguably Amazon and Domino's Pizza as well. Axon for sure, which by the way, since the last 22.8 years has returned 53,000%, 792, Cagrid at 32% since inception, even Tesla. Let's look at those names okay they have all combined a hardware and software moat together okay apple for sure nvidia for sure intuitive surgical for sure arguably amazon at least bridging the gap between tech and physical axon for sure domino's pizza connected they were the first like hey what if we just digitize pizza tesla for sure with the

the tech inside the car what about regenera regenera uses big words that i don't understand so a you know like six out of the top 12 names right there all share a really common characteristic around bridging a physical product with a software product that makes it really, really sticky. Look at the Bloomberg terminal. That's another classic example. There are all of these really enduring products that have owned the gates and the software. They've been gatekeepers of the ecosystem and own that internal software. I mean, look no further than Apple. That's the prime example. Axon's been leading the way with their hardware and software together for police forces. So that's one lesson that I learned from right away.

And I'm going to be thinking about more and more as I go. I even, I really like Uber stock right now. The price has run up so much. I should have bought it when I told you I really liked it before. But I didn't because I didn't. That's another company connecting the physical and digital. It's using software to connect the physical world. Airbnb is another example. Okay, so that's one thing I thought of. Number two, they have all faced intense drawdowns. Drawdowns that would make you feel like these companies would be left for dead multiple times over their story.

I just went on FinChat price target. I typed in a bunch of the tickers and pressed drawdown setting. They've all been in situations where they lose more than half their value, sometimes all at the same time. 01, 08. March 2000, yeah.

Yeah, they didn't quite get half off there, but they faced at least 25% drawdowns there. Many have faced over 80% drawdowns. Some of them have faced more than 90% drawdowns during that time, multiple times, including booking holdings, many of them have looked left for dead a couple of times during that story. The market has hated them multiple times. And it's not just like one black swan event happened. There have been multiple times in this 20-year period where a lot of these companies didn't look interesting at all and were on massive, massive drawdowns. And only the investors who got to ride that huge wealth wave were the ones that focused on the fundamentals and not the narrative. Look at meta last year. Look at maybe what's

happening with Google this year. I don't know. And so it's important to kind of focus on the fundamentals, the real structure of these businesses. Are they really intact or is the market just selling them off in a major way? So that's obviously a lot harder when it's happening. It's a lot harder to swim against the current when it's happening. But you have to remind yourself, all of these companies that have had huge success have had severe intense drawdowns. So you know what you're signing up for, right? Like it's not the norm for these companies to cagger at a 30 bagger without any volatility. That is not the norm. It is exactly the opposite of that.

And so I think it's instructive to just learn from which companies have done well, what are some of the characteristics of them, and that if you are going to be a long-term investor in individual equities or the broader index, you're signing up for volatility and you're signing up for extreme drawdowns, including many of them over 80%. Yeah. And I think that's a good point because it's,

you know, people will see these graphs. And again, I kind of come back to newer investors and they're like, oh, wow. Like if I invested in Apple, you know, I'd be rich by now if I put $10,000 or 20K back then. And they see that. And I think it's really important to remind that remind people that you need to understand the business pretty well to be able to hold the company for that long and not panic when there's a drawdown. Because it's much easier said than done. If you zoom out 20 years, you see these returns, like, oh, like it's, you know, look at this investor, it's easy for him or her, like they invested in that,

they got great returns just because of that one stock. Well, I'm sure there was a lot more people that invested in Apple, and a few years down the line, they just panic and they sold it, and they didn't hang on to it and have all these amazing returns. It's much easier, like having gone through drawdowns. I think we've both been through some significant drawdowns for names we hold. I think we're pretty good at, you know, staying the course if we have conviction in it. For me, obviously, it's not a company, but Bitcoin,

I've seen quite a few drawdowns there. It's easier said than done. I'll just say that. Like sometimes people will see these graphs and they just think like, oh, I just need to do that. Well, make sure you do the work because when it's happening, you know, fear is a powerful motivator. It is. Fear is a powerful motivator and fear is a powerful storyteller. is. Fear is a powerful motivator and fear is a powerful storyteller. Fear is the most powerful emotion a storyteller can kind of use. And what that really relates to is the stories that people create around companies, the stories that are crafted around a company's direction one way or

another. And it usually starts with a little bit of price sentiment right it usually starts with a little bit of net negative price sentiment i mean in the last like month i don't have any really particularly hot takes beyond what i've had about google which i think that change is bad for every monopoly and i adjusted my portfolio that way. But in the last two months, we have seen everyone say there is cultural rot inside of Google. It is a hellscape woke rotting company. Sundar needs to be replaced immediately. We need to fire every engineer that's out there.

Right size the cost structure. Stop innovating. This company sucks. Two, Sundar is going to pull off a deal with Apple for Siri. He's a genius. This company is amazing. They're going to win AI like literally in a month and a half. I've seen that unfold on most public forums, a lot of professional discussions,

everywhere you look, man, like podcasts. So the narrative can be driven by- I've seen it and I've heard it, yeah. Yes, so the narrative can be twisted and spun very quickly. Here's a little hot take, okay? Company culture doesn't change in two months. Company culture takes a long, long time. And I actually do think that these big tech companies do need a shakeup. And that just because the stock rallied a little bit doesn't mean that they've fixed their issues. That's

the story, both on the upside and the downside, the price can drive. No, I think, yeah, I think that's definitely a fair point. I don't have much to say about that because I agree. I mean, it's, yeah, the market can be, people can panic based on headlines. People can be really short-term focus, obviously, like, you know, I think there's at least questions to be asked if you're talking about Alphabet and Google, because I remember when ChatGPT came out, and Google, because I remember when ChatGPT came out, people were panicking that Google search would just, you know, go away and Google would be a shell of itself. And obviously, search is still there. Will it happen eventually?

Maybe, maybe not. Who knows? But one thing that was happening at the time, and I think it's shifted a little bit, is people were like, oh, well, wait till Google comes out with their AI tools because they've been working on that. And I think now the perception is kind of not sure, right? They're not sure really where Google is at because there's been a few events that they've, high profile events where they didn't show as well as people expected. But I think it's good to just take a step back. And, you know, maybe if you have a position, just take a step back,

wait till things settle down, and then make a decision whether you want to continue being an investor in the business. And if you want to invest in the business, maybe it's just good to take a step back, let the dust settle a little bit in the next few quarters, see how things progress. Because this space, as well as probably anyone, it moves very quickly. So in six months, you can get a whole lot of information on where things are going. I find it mind-blowing. By the way, I'm long Google. It's like 3% position. So with that context in mind, I am mind-blown how that organization could have released a product that was so riddled with trying to be very careful when it comes to uh woke identity politics yet the same team will launch a completely faked completely false gemini computer vision demo where they showed like i remember that one you know the one yeah it was completely faked yeah i think that's the one where they like basically text to

image but they basically was in the ai doing it it's them that kind of made sure it did it that way type of deal right yeah yeah they they shopped a video pretty well to make it look like it was you know very impressive and i think think that the demo that they did, I think that their tech will get there soon. But the fact that they were so behind that they had to release a fake video promoting it and then apologize on it, it's just like, what are you guys doing, man?

Like that's, these are the same people who are so careful to release anything that says anything racist on their AI, yet they will just fake a video. Like, same people. I don't understand how that character type exists. I think it's probably, I mean, it's hard to say that it's not a culture thing, but at the same time, it's funny because they were taking their time. It looked like Google. I mean, everything I was hearing, I think you as well, right? Like prior to 2022 or prior to November 22 is like, oh, Google's really like ahead of everyone. They're just making sure everything is good.

ahead of everyone or just making sure everything is good. They want to be sure that everything is like tip top, you know, perfectly, not perfect, but all buttoned up. Everything is well done before they release it. And then open AI came out with chat GPT and it's almost like they panicked. And then it was like,

okay, screw this. We're just releasing products and not, you know, not doing the proper testing. Like, I just don't understand why they couldn't find a happy middle, maybe. So much pressure, investor pressure. Yeah, but at the same time, I mean, I think they are probably seeing now that,

you know, potential clients would use this technology. They'd rather wait a little bit and get a product that's actually good than, you know, these botched presentation or botched products. Like, I don't know about you, but I'd rather wait a little longer and, you know, have a product that's amazing than, you know, trying something and it's completely crap and it just doesn't fit the bill. I don't know. To me, there's definitely a reputation thing for Google right now where I don't think they can mess up again on this. They have to make sure they get it right going forward because after a couple times or two, three times of messing it up,

I don't think people will give them that much leeway going forward. Yep, agreed. Thanks for listening to the pod, folks. We really appreciate you tuning in. We are here every Monday and Thursday. Has the show been going on? I've been out of the loop. The show has been going on.

Yeah. The show has been going on. Yeah. We had a guest on Monday, last Monday, a financial planner. I think the feedback was really good, especially the timing was quite good with that CBC investigation on big banks, just pushing shilling products on consumers that are high fees and boost bank profits. So it was a good timing to see what... Did you guys discuss that? we actually talked a little bit about it but

we had recorded like a mile three four weeks before so it was kind of funny that we had touched on the subject of high fees and these like advisors and air quotes at banks that are putting people in two percent 2.5 mutual funds that are performing poorly. So no, it was a really good interview, good feedback that I've had so far too. I would say we should pencil in for next episode discussing that because you and I were texting back and forth just like Canadians who want to start investing, the worst thing they can do is walk into a large Canadian bank and say, hey, take my money. It's probably the worst thing they can do. I mean, I can't think of that many worse ideas.

And it's too bad because people end up going there trusting their banks, right? Like they think they will. Like I think most people when they go to a bank and they want to talk about investing and stuff like that, I think they go in with the expectation that, sure, the bank will make some money money, they'll get a fee, that's fine. They're providing a service, but not with the expectation that the bank will try to essentially screw them over. That's basically what they're doing. Yeah. Right. Well, that does it for this episode, folks. So much to discuss. We'll have to be another episode.

I'm here Mondays. Dan Kent is discussing earnings with Simone every Thursday. You can support the show at join tci.com. You get my portfolio, you get Simone's portfolio, you get Dan's portfolio update every single month. And you get this podcast on video as well as if you are a real estate investor, if you are buying your first home, if you are currently a homeowner and thinking about diversifying the portfolio with real estate as well, you should listen to the Canadian Real Estate Investor Podcast. There are probably over 150 episodes at this point now. I'd have to check.

I think so. Yeah. They've been cooking it. I just listened to an episode this morning. So was them going over some recent surveys about the economic prospect for Canadians? Spoiler alert, it's not good. It's pretty grim. How grim was that? I can just picture Dan being pretty grim about it. The baron chief, Dan. Yeah, Dan Foch, the baron chief. So if you're into that real estate wise and you have not yet checked out the show, that is at the Canadian Real Estate Investor Podcast on your podcast player.

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