The Canadian Investor - How to Find Winning Investment Ideas

Episode Date: August 25, 2022

Finding new ideas for our portfolio and decision paralysis haunts all investors.  But, luckily there are tools and resources to make the process easier.  Braden sits down with Dave Ahern to discuss the process of finding high quality businesses to own for a long time. Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital 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 to Stratosphere for free 🚀 our platform for self-directed stock investing research. 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. My name is Brayden Dennis, as always joined by the mythical Simon Belanger. Simon, I'm going off the board here with this first segment. I can already picture your face grinning while I'm going off

on this tangent. Hey, let's do it. I mean, yeah, it's going to be interesting. I saw the notes. You don't even know. You have no idea what I'm going out hot with here. Yeah, go for it. It's going to be good. Okay. So this is a prelude to a interview I did with Dave Ahern from the Investing for Beginners podcast. The guys over there and us, we like to collude, share each other's audience, and they're also just dope guys. So it's good to hang out with them every once in a while. So I did an interview with them. That's going to come on later for the show. Dave and I talked a lot about portfolio construction, how to find new ideas, decision paralysis, these kinds of, how do I structure a portfolio when there's so many good ideas out there and just how to overcome

that really. And I think that it's an important discussion. Before that, kind of tied together, maybe a bit of a stretch, I'm going to talk about gravity and portfolio concentration. Okay, Simone. So a regular human, not me because I'm just, you know, you and I are athletic specimens. So it's just not us, but the average human can jump 0.45 meters. So like 45 centimeters on earth. Okay. That's the average human. And again, of course you and I like box jump specialists are going to be higher than that. On Jupiter, the average human can jump 17 centimeters. So 0.17 meters. Okay. Obviously more gravity, you're kind of just like, you're not going to get off the ground. Mars, less gravity, the average human can jump 1.18 meters. Now, if you go to some really small moons

out there in the solar system, Miranda, which is a moon from Uranus. How do you not love the name of that one? 57 meters you can jump. You can jump 57 meters on this moon from Uranus. Phobos, which is a Mars moon. Things get out of hand here. If you were to jump, if you were to just do a normal jump, you would launch yourself 773 meters off the surface of that moon. Obviously, because it's just very little gravity, the actual moon is very small. There's not a lot keeping you grounded, okay? This is the way I think. Jump in, jump in if you want. So now before we continue on the Canadian science investor, is there an investing concept here, Brayden? I'm going in a roundabout way here. This is the way I think about portfolio construction. Gravity and portfolio construction of the different sizes of masses that are out in

the solar system. Really, really small positions have really, really wide outcomes. If I am looking at Phobos, this moon of Mars, if I lift off, I'm going to go 773 meters in the air. I have very little confidence on where I'm going to land. Do you see what I'm saying? There is a huge wide range of outcomes for where I would land on the surface of that moon. It's just very unknown. And I need to position that as a very small position if I'm going to have exposure because the outcomes are wide. It could be a slam dunk. It could not go so well. So I want that to be very small, just as its mass is and how its gravity is going to affect my portfolio. If I'm doing the same on earth, I already know what earth is like. I jump up and I jump up the same height I do every time on earth.

I'm familiar with it. I know what the business does. I understand how it makes money very well. I understand their competitive advantages. I know who runs the company, like the C-suite, the CEO, potentially the founder. I know all of those things. I know their margin profile. I know their growth. I know the risks ahead of them. It's familiar. I know the risks ahead of them. It's familiar. I'm more comfortable having that as a really large position. As you know, personally, five names make up 60% of my portfolio. I'm comfortable with them. I own a stock today that is up 32% named the trade desk. The trade desk is up 32% today, and it has been a roller coaster of volatility. I have it the smallest or one of the smallest positions in my portfolio because there are still a lot of unknowns in the ad tech space.

That is my Phobos. That is my 773 meters of variance, And I'm going to position it accordingly. What do you think, Zeebo? What do you think? It went pretty far to dig out that one. I'll just say that. And I mean, we've talked about portfolio allocation before. And that's one thing I've kind of been pretty steadfast on. For the stocks I own. I tend to own very kind of stable, good businesses that compound over time. They won't blow you out of the water in terms of growth every year, but they'll be steadily growing and just increasing.

Obviously, there's going to be some volatility, but when you have a big position, you don't want something that's like super high risk because that can really impact in either a positive or really terrible way your portfolio. So I want to avoid that. I think you too, right? You want to have your largest holdings, have really solid holdings that you know well. For me, my biggest holdings, whether you want to put them together or separate, it's Brookfield, Brookfield Infrastructure Partners and Renewable Partners. And if you look at their returns over time, they've been extremely good in terms of total returns. So I think that's a great approach to have. I do have some high growth stuff too that's highly

volatile. And I would only allocate a small portion of my portfolio because I know if it does take off to a 773 meter jump, I know if it does really take off, I only need a small portion of my portfolio. And that will make a huge difference. Exactly. And if it doesn't and it goes to zero, it's fine. It won't make a huge dent in And if it doesn't and it goes to zero, it's fine. It won't make a huge dent in my portfolio. Exactly. This is the comparison and analogy I have between gravity and conviction, right? The way you're saying that how you run your portfolio and the same way I run my portfolio is portfolio allocation is a direct derivative to my conviction in it. I think that that's a good

way to go. Without further delay, let's go over to my interview here I did with Dave Ahern. I think there's lots to learn here. I appreciated Dave's authenticity in his learnings. He's an investor full-time now, and he still has these internal discussions with himself and figuring out how to find new ideas and which rabbit hole to go down next. He has some really authentic discussions. I think you're going to like it. Here's my discussion with Dave. 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. TCI podcast listeners, we have yet again, another wonderful interview. Today, I'm joined by Dave Ahern of the Investing for Beginners podcast. Dave, this is crazy. Usually it's the three amigos. Today, it's just us hashing it out. I'm pumped. What's going on, man?

I know. I know. It's weird, isn't it? Like, where's Andrew? Where's Simone? This was like, alternate universe kind of thing. Yeah. It's just us. And I'm pumped because we can discuss our love for payments. And then we can talk about what you and I were talking about offline, which is how to find new idea generation. Which rabbit hole do I go down next? I've been so engulfed in payments. There's so many good ideas out there. How do I really disseminate what works, what doesn't? One of the biggest problems with this game is decision paralysis, right? It's very difficult. Yeah, it is.

And the other challenge is the more information that you have access to, the more decision paralysis there comes. And we've talked a lot about your platform and it's awesome but it also leads to you know oh gosh i got i have even more access to information and now it's like even more paralysis like ah so yeah yeah yeah it's definitely something that i'm struggling to overcome i'm not gonna lie totally and we're trying to build like a degeneration tab but you can like filter like say you want to filter just by payments or something you get a list of those companies and you can dive in and and do some kind of quick screening mechanisms.

Right. Because you're right, it's difficult. And decision paralysis is a real thing. Decision paralysis for me anyways leads to imposter syndrome. And that sucks. Yes, it does. It's never a good feeling. And every investor feels levels of imposter syndrome across their investing career. Usually it hits you right after you lose a bunch of money.

Right. That's usually the come to Jesus moment, isn't it, for everybody? It's like, hey, oh, this is super easy. Investing is easy. And then you get punched in the mouth. And what is that Mike Tyson quote? Everybody's got to play until they get punched in the mouth, right? Exactly. Exactly. Okay. Let's get into it because you have been discussing payments online. You've been researching payments. You've been kind of engulfed in the whole payment ecosystem. Do you want to walk us through who the players are, how regular transactions work? It's an area that we talk about quite a lot on the podcast because Simone and I both own some of the big payments companies. We think that they're wonderful businesses from a margin perspective, network effect perspective. It's just really good. Do you want to just walk us through that ecosystem and this journey you've been on trying to figure everything out?

Yeah, absolutely. So for me, it started with banks. When I first got into finance, I was really fascinated by how banks operated. And so I thought, let's learn about banks, which, of course, is completely opposite to learning about something like Netflix or Amazon because the ecosystem, the language that they speak is completely foreign. So I start with super hard stuff, which is kind of the best awkward way to do things. But anyway, that kind of led me to kind of the payments idea. And about a year and a half ago, two years ago, ironically, kind of when the pandemic started is when I really started kind of really diving into this. And some of it was sparked from

our conversations about Visa. Of course, we got to mention the V word, as always, whenever we talk. Even if it's not the three Amigos, we're still talking Visa. And so it kind of started with that, like trying to figure out, honestly, how Visa works and how the company makes money. And it just fascinated me. And I'll admit, when I first started looking at it, it didn't make sense. And so I had to start kind of piecing together through reading financials, the 10Ks for them, for MasterCard, going to places like Wikipedia and learning about the history of the company, learning of the history of American Express and Discover and all these companies. The Bank americards yeah exactly all the history of all this stuff is just fascinating and so

it really kind of led me down this path of really discovering how payments work and how amazing it just ridiculously amazing the whole system is for example when we go to to Starbucks and we pay for our coffee at Starbucks, it takes literally seconds for the whole transaction to occur from the time we swipe our card to the time it goes to a gatekeeper like, I don't know, Jack Henry or Global Payments Network to Visa to whatever bank your card is on and then back again through that system to being accepted at starbucks and we get our drink and we go on our way and it literally takes nanoseconds for all this to happen and the fact that none of this is these companies are not right next door to each other you know these are multi-geographical located companies. And all this is occurring sometimes locally, sometimes cross-border. There's just so much to it. And kind of the basic, I guess, flow of the system, if you will, just generically, is when we present our card as a payment, whether it's a debit card or a credit card, it goes through a processor that the business uses. And in some cases, all

these terms can be interchangeable, and I'm not going to bore everybody with all the technical details. But basically, the processor allows the company, like a Starbucks or your local coffee shop, to process the payment. And then that payment goes through Visa as the toll keeper or master card, depending on what little icon is on the company's card. They're the toll master that makes sure that security, that everything is legit coming from the processor, which comes from the merchant. And then that goes to either a processing bank or another processor. And then it goes finally to our bank to say, yeah, Braden has enough money, barely, in his account to cover this.

Dirt and raw has got me into this last Starbucks trip here. So he can barely afford his coffee of a du jour. And then all that goes right back through the processor, Visa, back to the merchant acquirer, back to the merchant. And then the merchant will get their money. Typically, this is the interesting thing, is Starbucks or your local coffee shop, they don't get the money right away. In most cases, they get it the next day or sometimes two days.

If it's processed with American Express, they get it five days later. Because it comes in like pending. Yeah, right. It comes in pending. And so it's just basically it's approved. The bank puts a hold on the funds and then it all goes back to the merchant and we get charged our credit card. We get it a month later, a debit card, it comes out right away. And so that's kind of the whole process. But then all these companies take a little piece of the pie along the way. And so like you mentioned yesterday in our conversation about Visa is their take rate or the money that they take from the merchant. So it's a Starbucks or the local coffee shop.

They don't actually get the $5. They get a percentage of the $5. And so Visa takes a very small amount. And it's like, like you said, death by a thousand paper cuts. And usually. It's like 0.14%. Right. Yeah. It's very,

very, very 3% depending on the interchange fee. It's very small, very, very small. But, you know, like you said is yesterday because they're processing 15 trillion transactions, you know, a year, they're making a few bucks from all this. Right. And that is literally the run rate. It's crazy. Yeah. It's, it's, it's Yeah, it's nuts. It's obscene to think about how much. And it's just accelerating. So then you have the idea of the merchant bank. So the people that we get our cards from, so whoever you bank with personally, I personally bank with Ally Bank right now. And so Ally Bank issues my debit card to me, which has a Visa logo on it. So Visa gets a cut of the payment and Ally Bank gets a cut of the payment that they take away from the merchant or the Starbucks or the coffee shop.

And so when they charge us $5 for a coffee, they don't actually get the $5. They could get $4.92 or $4.80 depending on how it's processed and which card it goes through. So those are all mechanics of the business that a lot of people don't understand. When they're charged $100 for something, the merchant only gets $98.06 or whatever it is, depending on all the interchange fees along the way. So it's fascinating to see how that- But the payment networks get demonized as like they take that whole take rate when it's actually the banks that are taking- take rate when it's actually the banks

that are taking, because the banks are taking on the credit risk, right? The customer's bank takes the line share and then next up is the merchant bank. Yeah, exactly. Exactly. But here's the interesting thing that a lot of people don't talk about is the banks get demonized and in some cases, rightfully so. But the flip side of that is, I think it was in the 90s, a senator here in Illinois where I live, Richard Durbin, came up with something called the Durbin Amendment. And basically what it did was it put a limit on what banks were allowed to charge for debit card transactions, which is the majority of online card transactions, at least here in the United

States. And it put a cap on how much the banks could take their take rate from the merchants. But there's been an interesting workaround is that they set a market cap limit on the size of the banks. So all these fintechs that have risen huge over the last couple years in particular companies like block slash square paypal the list goes on and on and on all those companies because they don't have actual banks they work through another bank because they don't have a banking license perfect example is block they don't have a banking license well they're getting one now but example is Block. They don't have a banking license. Well, they're getting one now, but they operate in partner with another bank and that bank has lower assets than a company like Wells Fargo. So they don't fall under that cap. So they can charge whatever they want for merchants.

So when banks get demonized for how much money they're taking, Block is actually taking more money from the merchant than Bank of America is. Yeah, like Stripe, for instance, is taking more too. Yeah, exactly. Same kind of idea. I'm giving them more money than I'd like to every year, that's for sure. Yeah, exactly. So it's undoubtedly a great business, but this loophole in the Durbin Amendment is allowing a lot of these fintechs to take higher rates. All the buy now, pay later junk that's out there, they have huge take rates.

And it's all allowed because of this Durbin Amendment. I was reading something Jamie Dimon said a few months ago. He said, nobody's going to feel sorry for us. And they shouldn't because we have all these assets and all these resources. And we can compete with these fintechs. And it's up to us to figure out how to do it. But he said it gives them an unfair playing advantage for a company like Stripe. That's a perfect example. They have an unfair advantage because they can charge whatever they want.

So their economics are going to be far better. Their EBITDA margins, for example, are a rough push in 45, 50%. I know agens are over 60, 65%. So these are huge margins for companies. And that's a lot of profitability. And that's why it's become so profitable and so popular over the last two years. The amount of money, the amount of VC money, the venture capital money that's gone into fintechs has skyrocketed because there's so much money to

be made because of this Durbin Amendment loophole. And it's just fascinating to me. I just learned something because I had no idea. Quick side note, you can tell we have a Canadian and an American on the call because I call it Visa and you call it Visa. Yeah. That is a classic distinction right there. Right. Okay, that's quite fascinating. And the gears are spinning for me right now.

And I didn't, that's one thing I just didn't know. And if you look at these fintechs like Stripe and everything, the unit economics are actually just so incredible. I think that that's really kind of common across the entire ecosystem. It's like everyone's making crazy margins. And so the bear case on the ecosystem has been take rate compression. Is take rate compression going to happen? Although Visa MasterCard only take 0.123%, which is tiny in the 2% transaction fee that when I go use my credit card, who do you think really is probably the most susceptible to margin pressure in the ecosystem? Is it the payment

networks like the rails, like Visa and MasterCard? Is it the point of sale? Or is it the banks that have these huge take rates in this system? But then they can argue, okay, well, we deserve it. We're taking on all the credit risk, which I believe to be a fair thing. And there's no right or wrong answer. I'm just wondering if you've thought about that. Who is maybe most susceptible to margin compression or take rate compression? I think it's probably going to fall into two camps. I think one is going to be the point of sale processors. I think those companies are going to fall. They're going to get hit by that. I think the other, I guess, a layer of that are some of the legacy fintech players that they don't get a

lot of mention. They're not as sexy. They've been around for a long time. And I'm talking about companies like Fiserv, who owns WorldPay. I'm also talking about Jack Henry. I'm talking about Global Payments Network and FIS, Fidelity Information National Services. Those companies are- They're just in the background. Oh, yeah. They're in the background, but they process. So if you look at the hierarchy of payment processors, Chase Payment Tech is the largest. And they process the payments for Amazon, for example. So that gives them a pretty big ecosystem, too.

That's a whale right there. Yeah, that's a big old whale. But Pfizer, for example, owns Ropay. So about four years ago, there was this huge consolidation that went on in payments and all these big legacy tech companies like Fiserv and FIS, for example, bought some of these big payments players. And the margins for those companies were not great and they're getting better, but they're still not great. they're still not great. And part of it is they still have a lot of legacy tech that they're working through. And then they have this new business model, if you will, because a lot of these legacy players were more core banking players, which is kind of a different ecosystem. And it's a very sticky, but it's also a much lower margin. And then you have the payment stuff, which is a much higher margin, but it's not as sticky. And so I think what's going on is that these companies like FIS, Fiserv, Block, PayPal to a certain extent, a lot of these companies I think are going to start seeing some margin compression as we continue to evolve into the ecosystem.

And each one of them seems to be kind of trying to play in a different niche. And whether I'm right or wrong, I feel like that there's not going to be one winner in this. There's going to be multiple winners in this. And there sure has been. Yeah, there definitely has been. And I know there's lots of talk about, especially on Twitter, there's a lot of talk on Twitter about the competition between Ajin and Stripe, for example. And I think what really, they aren't playing in the same sandbox quite. And I think they can compete alongside each other. There's going to be places along the fringes that they're definitely going to compete, but the model of who they're going after are different.

And kind of the same thing with Block and PayPal. They're really going after two different kinds of things. And I'm not talking about the Bitcoin stuff. I'm actually talking about the point of sale business that Block has under their ecosystem. And I think what you're going to see is that all these companies out there, there's been this huge expansion of all these companies. And now you're starting to see a lot of them fail because the VC money is going away because the market is drying up and people are looking for other safer assets to put the money into right now. And so a lot of these companies are starting to kind of fall off and you're seeing less

expansion into the fintech space, but you're going to see some big IPOs in the next few years with Stripe and Chime in particular. Those are going to be huge IPOs. But there's also some smaller players in Europe that I think like Revolut and N995 are a couple of companies that kind of spring to mind that have done really, really well over the last few years. And it'll be interesting to see how they kind of play out. So hopefully that answers your question. No, it does. And I've learned a ton just chatting about this. And yeah, the Stripe IPO, I mean, I thought that that would have already happened if you asked me a year and a half ago, but here we are. I mean, obviously multiples in the private market have compressed quite a bit. So they probably have to weigh the pros and cons about what does an IPO

look like? When is the good time to do it? There's no real way to plan that right. Adyen's just crazy profitable and Stripe runs their business quite a bit differently in terms of there's way less employees at Adyen. They run such a lean operation. Stripe's like the typical Silicon Valley VC backed. Adyen's more like the bootstrapped, more lean, highly profitable type name. But man, those are good businesses. Yeah, they really are. And if I could touch on a couple things about those companies, so in comparison to some of the legacy tech. So I read something, there's an analyst that I love, Mostly Borrowed Ideas. His newsletter is fantastic. And he did a great write-up on Adyen not too long ago, a few months ago.

It's a very cheap paywall to get behind. It's like $8 a month. $10. Yeah, $8, $10 a month. It's dirt cheap. But anyway, he was writing about Ajin. And he made a really good observation. The company Ropay, which is one of the largest payment players out there right now,

they are a cobbled-together APIbbled together tech that is a multi-year acquisitions that are still being worked through to integrate. And so it's not a uniform process for that company. And a lot of the tech that they're using is outdated. And when you compare that to something like Stripe, which is a very, very simple API, and when you compare it with Agen, which has not done a single acquisition since they were founded, and they have a very simple API as well. And they're expanding on that, but it's all very uniform. And so the integration when they go to a new company is very, very seamless.

And it's the same thing with Stripe. And so that allows them to acquire business much, much easier than it does for a company like WorldPay because of some of the struggles they have with their tech. And so it's just kind of an interesting business model and how they're kind of approaching it from different angles. It's the developer mode. Yeah, exactly. If you have the mindshare and the ease of use for developers to get started, right? That was Stripe's pitch deck when the Collison brothers first came to America was integrate payments, start collecting payments online with one line

of code. And that has been the billion dollar idea, I guess, $100 billion idea in their latest fundraise. And it just works. It's such a good value prop. And you're right. They have way more optionality. These new companies have way more optionality because technical debt is a real thing, right? If you have technical debt, it is very difficult to get this integration mode that they have built, right? How are you going to get all these new companies building and innovating on top of you if your tech was developed on something built in the 80s or earlier or earlier? Yeah, exactly. That's tough, right? And so these companies do have a huge advantage.

And so these companies do have a huge advantage. 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 look at that and I'm like, how are these legacy tech companies that provide financial data going to compete with something like me built on Next.js and React framework?

Obviously, they're gigantic and they're probably asking, how am I going to compete with them? I see an ecosystem being potentially built on top of that. They're closed doors. You can't really build anything on it. I think you only have to look as far as maybe Super Bowl commercials to realize just because a company has lots and lots of money doesn't necessarily mean that they're always going to be the smartest people in the room and they're going to come up with the best ideas. I mean, anybody can go through a litany of all the duds of Super Bowl commercials that companies spent millions on creating and paying for those slots that were just complete duds. And so just because there's a lot of money out there doesn't always

mean it's the best or the right solution. So, yeah. Totally agreed. Okay, let's shift gears because the reason that we thought of the second segment here for the podcast is you've gone down this rabbit hole of payments. You understand the ecosystem. You probably have come out the other side thinking these are the horses I want to own long term. I think that that's a great thing to do. Now, where do you go next for idea generation? And something that everyone struggles with, everyone battles with. What's next? Where do you go next? There's this huge investable universe. There's some

sectors that you may know lots about, some you may know nothing about. What's next? What's the process? How are you thinking about this? Oh, yeah. Truthfully, this is what I've been struggling with for the last six months or so because I've been feeling like I'm becoming a narrow niche investor and I feel like I need to expand my horizons. Maybe more generalist. Yeah, more generalist as opposed to so focused. I feel like I'm an analyst working for Goldman Sachs and this is my niche that I've been assigned. This is a sector I got to follow. So I guess for me, I've been trying to just explore things that then interest me, things that I think are interesting to me that I think could have potential in the long run. And at first I looked at the renewable space and I really tried to dive into that.

And I did that for a little while and then that didn't really seem to bear a lot of fruit. And so then I started looking at, I think more along the lines of internet slash cybersecurity and maybe some cloud stuff, that kind of stuff kind of interests me. But when I think about some of the tech of that, it overwhelms me. And when I think about something like cybersecurity or something along those lines, I know nothing about coding. I know nothing about programming. And so that technical lack of technical knowledge gives me a lot of the imposter syndrome. Like if I don't understand this, how the heck am I ever going to understand how a company like CrowdStrike or CloudFlare is actually going to perform and could perform if I don't understand the tech?

And so it's a struggle of imposter syndrome, rearing its big, ugly head, and then me trying to figure out how can I overcome that? I guess it's a lot of things. So in my lifetime, I've been fascinated by a multitude of things, payments, Roman history, music, wine, civil war history in America, all these things. And basically what I do is I just try to immerse myself in those ecosystems. And that's what I do with payments. And that's what I do with banks. And that's what I'm going to try to do with the next thing that I cover.

And that includes spending time on Twitter, trying to find the people to follow that can help teach me stuff, reaching out to them and asking them for suggestions. Hey, I really like your stuff. Where do you suggest I go to learn more about this kind of thing? Because there's a wealth of knowledge out there and there's a lot of people that are sometimes willing to share it with you and help you improve. I listen to podcasts. I watch YouTube videos. I read the 10Ks. And then another little hidden trick is I go to the proxy statement of that company. Let's say, for example, I'm looking at CrowdStrike. I would go to their proxy and look in their proxy because they're going to list all the companies that they feel like are competitors because that's who they base their management

compensation on is how they're doing compared to their competitors. And so in there, you can find 10 to 20 names sometimes of other companies that could weed you down other paths to learn more about those particular companies. It's not easy. And sometimes it's a slog to read through some of those 10 Ks, but it's what you have to do, I feel, to start getting an understanding of the ecosystem. Because it gives you a broader range of, it's not just this company, but it's all these other companies and how they're interconnecting and competing and things like that. So that's what I've been doing. I'm curious, how do you approach this kind of idea?

I think that your approach is smart. You're thinking like, okay, what's a good secular trend I can, like what's a good secular tailwind I can get behind and who are the highest quality names and how can I gain the conviction in those high quality names to potentially get along them or write about them or start learning basically is how I'm hearing that. I think that that's pretty smart. I mean, when I think of, you know, what I do is I come up with like, what are the best businesses in the world? And I have literally a spreadsheet that I track. And I think I track like 85 names on there. I just try to know a little bit about each one. And I'm never going to be the credit suisse analyst that has the deep, unbelievable understanding of one to five companies. I think that that's cool, but it doesn't scratch the itch of learning about different businesses for me. And I think that you're probably the same. And so among that list, I'll just do some work. And I think that Selfishly Stratosphere has helped me with that a lot too, right? Because

myself or Adrian are writing about these companies. If you do a write-up on a company, you go from zero to like an eight. Yeah, yeah, exactly. That last nine and 10 will take a while, but you literally go from zero to an eight. Like what does the business do? How does the tech work if that's the type of company? Who are the players? How do they make money? Just simple stuff like that. A lot of it's not apparent from an outside view. Payments is a perfect example. You're looking at it and you're like, oh, Visa lends me money. It's like, no, they don't lend you money.

They have never lended money. They're just the technology that facilitates payments. The banks are the ones lending the money. And so that seems obvious after you know it, but it's not at first, right? No, not at all. It's totally not obvious as just like a general consumer. And so payments is one of those things. And maybe the next thing you go down is there's so much that we just take for granted in terms of tech when you do tap that card at Starbucks and it just works immediately. It's like the internet. It doesn't work and you're like,

it's like absolute disaster. It should work. It just always works. And so it's one of those things you take for granted. Maybe one that would be interesting for you to go down is cloud and internet infrastructure. Because if we're talking about things that are obviously growing, digital payments, obviously growing, check that. You've checked that box. Things that are obviously growing, internet connectivity and cloud computing. I'm thinking about the infrastructure players like Equinix, those REITs that actually provide the infrastructure, and then the actual hyperscalers, the big three hyperscalers, GCP, AWS, and Microsoft Azure. hyperscalers, GCP, AWS, and Microsoft Azure. That does kind of feel like to me an obvious choice to go down. Another one that I think is interesting for you to maybe consider is like, again, I'm very

tech biased here. SaaS, very, very sticky SaaS that serves just a few critical professional areas, that serves just a few critical professional areas, like Autodesk for architects and engineers, Intuit for small business. And I know you've been posting stuff on Intuit. I've been looking at it as well. Those are just some ideas that I'm thinking of right now, just hashing it out with you. Those are all undeniably great companies. And I think those are great ideas. The cloud and the infrastructure and all those things, I think those are all, like you i think those are great ideas the cloud and the infrastructure and all those things i think those are all like you said those are all going to have tailwinds that are going to keep pushing those things higher and i guess the thing that i struggle with again with those is i don't understand the tech is per se and so i struggle with should i really go down that rabbit hole if I don't

understand the tech and how can I learn the tech? Do I have to actually learn how to program to really understand what it is that AWS does? And I know that I use AWS products because if I log into Netflix, isn't that who hosts Netflix is AWS. So I know I'm using it in the background. I just don't necessarily understand the ecosystem. So then I kind of struggle with that. A company like Intuit, for example, I used QuickBooks in my past life. I've used TurboTax off and on for the last 20 years to file my taxes. So I'm unfortunately very intimately familiar with their tax stuff.

So it's something that I use. So I understand, you know, in essence, how the business works. And it is very sticky. I agree with you that, you know, something like that. I'm not in the architect space, but I know you've talked a lot about Autodesk. And I know that it is in the architect space. It's taught in school, for Christ's sake. So it's like, you know, of course, it's going be this super sticky, super sticky. It's kind of like TurboTax and

QuickBooks. QuickBooks is taught in accounting. Accountants are taught how to use in school. I mean, that's just, you know, that's just another boat that gives into it. It's just, yeah, it's just, it's just crazy, but there's all that. But then the thing that I bump up against, and that's why I kind of abandoned the whole renewable thing, is for me, price becomes an issue. It's not the actual dollar amount. In renewable power? Yeah, the value.

That's kind of where I bump up against. A company that I've really become interested in, Canadians will love this, is Brookfield Asset Management. I've been talking to your analyst, Adrian. What's that? What's Brookfield Asset Management? I've never heard of it. BAM. Never heard of it? Never heard of it. Yeah, right. There's like two triggering words for Canadians. BAM is one in Constellation Software. It's like catnip for Canadians. If you say either

one of those words, it's like... Oh my God, it's so true. It's funny, but I've been trying to learn more about that company in particular, but I don't necessarily understand the organizational structure and how it all interconnects. Did you see the graphic I made for Brookfield? Oh yeah, I know. That's pretty helpful to get. It just shows the subsidiaries and how much each piece is owned by the mothership of Brookfield Asset Management. Yeah. And I understand that and I get all that, but I don't necessarily understand the connection

of the financials of Brookfield Energy, BEPC, how that connects to BAM. And I don't understand that connection of quite that. So that's what I'm still trying to work through. Well, no one does. It's probably one of the biggest black box of any public equities that exist, especially because there's no real look through on yet. There's no real look through yet on the asset management earnings. But they're spinning that out. It is truly one of the hardest companies to value on a sum of parts. It's really difficult. But my God, it's such a good management team. Oh, yeah. Bruce Flatt is ridiculous. And he's really been responsible. I read a brief history of the company. And he's really the one responsible for driving what everybody knows

as Brookfield Asset Management today. I didn't know this, but it started out as a Brazilian company, which explains their Brazilian connection. And I was like, wow, that's fascinating. I had no idea that this started in Brazil all those years ago. So it's a fascinating company. But the renewable energy for me was I just had a really hard time finding a company that, A, had growth prospects. Well, there was a lot of growth prospects, but so many of them were unprofitable and I didn't see profitability on the near horizon. And so that just, that made me struggle mightily with that, particularly with the, with the solar companies in particular. Brutal margins.

Yeah. Brutal margins. Especially, especially in the manufacturing and production side. Yeah. Just absolutely brutal. And, you know, everybody, everybody's so cuckoo about nuclear that it's just, I know we've talked about this to pass, but anyway, so that's kind of led me to kind of stray away from that. So I guess that's one of the things I'm going to be a little concerned about with getting into some of those things is I'm going to bump against the price, but that's, I can work through that. Exactly. Well, Dave, this has been fantastic. It's nice for the listeners to kind of hear us hash out,

where do we look next? What's the next dive? What is interesting? And also a really important piece of this conversation is we're hearing you talk about, candidly, about a bunch of industries you just don't understand and then therefore can't be investable yet. Right. Yet. The caveat with yet. And if that changes, then they can become investable ideas. Yeah. But the real takeaway there is in a market drawdown, like we've seen right now, if you do not understand the business well enough, how are you going to react during volatility? Right. You're going to do the complete opposite right thing. You're going to do the wrong thing at

the wrong time. Even if you picked a great company, how are you supposed to know? Right. Yeah. You can't. You can't. And you got to know what you own. The old Buffett, the old Peter Lynch never goes out of style advice, which is know what you own, man. You got to know what you own. And a lot of people struggle with that in the DIY space. Yeah, they really do. And I think you're 100% on the mark with that.

If you don't understand what the business is doing and you see it drawing down, you're going to panic and sell out of it. And that may be the exact wrong thing to do. It may be better to hold or even average down depending on where you are with your financials and what you really believe about the company and where you think they're going to go. Totally. Well said. Thanks so much for joining us today. And thanks listeners for listening. If you go to stratosphere.io, you can dig into these metrics, whether it's gap financial metrics, whether it's key performance indicators, whether it's just stock idea generation. There's literally a tab called stock ideas to help kind of battle through these

situations and do like a semi deep dive, go from zero to eight on the company. It won't get you to 10, but it's going to get you to eight, and that's pretty good. I'm pretty happy with what we've put out there. That is stratosphere.io. Thanks for listening. Take care. 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.