The Canadian Investor - Microsoft Bets Big on Gaming

Episode Date: January 24, 2022

Simon and Braden start the episode by discussing the acquisition of Activision Blizzard by Microsoft. During the rest of the episode, we talk about the following topics: DC Pension Plans and how they work The passing of Lou Simpson Brookings Institution study on the increase in pay for frontline workers during the pandemic https://thecanadianinvestorpodcast.com/ Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Stratosphere 🚀 https://www.stratosphereinvesting.com/See omnystudio.com/listener for privacy information.

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

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My name is Brayden Dennis, as always joined by Simon Belanger. Simon, are you dug out of the snow yet? I mean, like it's just the pile outside of my window is absurd. Simone, are you dug out of the snow yet? I mean, it's just the pile outside of my window is absurd. Yeah, yeah. We're all good, although we got about 10 centimeters more today in Ottawa. Oh, did you really? Wow. Okay. Yeah. And they hadn't finished even plowing from the other snowstorms. So I think the city guys will have quite a bit of work on their hand for the foreseeable future. It is truly like the intro suggests, the great white north, the Canadian Investor Podcast. All right. So usually on the show, we save earnings releases and news and acquisition alerts

for the Thursday morning release. But this is just way too big not to comment here on the regular episode, which is the fact that Microsoft is buying Activision Blizzard, ticker ATVI, for $70 billion in this all cash transaction valued at $68.7 billion, because if you include Activision Blizzard's net cash, you arrive at that $68.7 billion acquisition. You texted me yesterday morning, bright and early when it was announced, all caps going, wow. I had the exact same reaction. Yeah. Yeah. It's hard not to have to. It's actually the largest tech acquisition in history after Dell acquiring EMC for $67 billion six years ago. Although you can probably make a case that Dell paid more if you've made that inflation adjusted. But nonetheless,

it's really a bloodbuster here. It truly is. And it's two companies that we've talked about quite often on the show, which is Microsoft and Activision Blizzard. For those who are unfamiliar with Activision Blizzard, it is the gaming publisher. A lot of them will know it for very popular first person shooter series Call of Duty. So when the transaction closes, Microsoft will be the third largest gaming company by revenue behind Tencent at number one and then Sony. All right, let's break this down in parts and feel free to chime in because I have a couple of talking points here, which is the first one that this deal is in all cash. Nothing was paid in stock, which is interesting from a few different perspectives. First off is

that they have that much cash just available. This is like only one year of free cash flow generation on the business. What do you make of that? It would be about 3% of Microsoft's market cap if it was like a stock deal, which is obviously still so small. So this says two things. It says one, that they have an egregious amount of cash and the business generates an egregious amount of cash. And two, that it would still be a drop in the bucket in terms of stock. What do you make of that? Yeah, yeah. I mean, I'm not surprised, honestly, that it's all cash for the reasons you said. Microsoft just generates tons of cash flow and they just have a very stable, especially the business portion, the business segment of Microsoft. So if you're thinking about Windows, Microsoft Office is super stable, very constant cash flows because now they've transitioned to that SaaS model.

And yeah, I mean, it's just they could afford it. And even if it doesn't pan out, I mean, I think Microsoft will be fine in the long run. Although, I mean, I'm sure they want it to pan out and I'm sure they have a vision. And I'll talk a little bit on that when you're done on where I think they're probably going to be taking this going forward. Yeah. probably going to be taking this going forward. Yeah. And it also speaks to the fact that when you have these businesses in trillions in market cap, like Microsoft, it's very difficult when you have that much cash just sitting on your balance sheet to make big deals, to actually move

the needle in terms of investing either through your income statement or through your cashflow statement. And then here we got Satya Nadella just able to invest $68 billion in a acquisition. It's going to lead us to some interesting questions in this segment here. But let's start with on that note, which is the fact that other large big technology companies seemingly get scrutinized heavily by regulators. We've all seen the classic clip where Mark Zuckerberg's in front of Congress having to answer questions about what is the internet? What is the Facebook? Imagine if Mark Zuckerberg tried to make this deal, it would get shot down so fast. This conversation would never be happening. And so it leads us to interesting questions about how Microsoft has been making so many acquisitions,

seemingly without much question from antitrust regulators. So Microsoft just acquired a gigantic amount of gaming intellectual property. Just in the past year, if you include this latest ATVI acquisition, they have acquired the following game IP, Call of Duty, Diablo, Warcraft, Overwatch, Starcraft, Crash Bandicoot, Guitar Hero, Tony Hawk, Fallout, Doom, Quake, Elder Scrolls, which is a badass game by the way, and Minecraft, which is ginormous, and then Candy Crush, which is a badass game, by the way, and Minecraft, which is ginormous. And then Candy Crush, which is part of King, which is just acquired through Activision Blizzard and more on top of the games they already owned, like Halo, Forza, Gears of War, Age of Empires,

and much, much more. So if that means nothing to you, if you're not a gamer, or if you are a gamer, you know, every title that I just listed, I know about, I want to say about 75% of them, or at least what 75% of them are. And the IP that they have just acquired, not only from this acquisition, but before they acquired Minecraft and acquired Elder Scrolls, they made 14 business acquisitions last year. This is a new era for Microsoft. Yeah, yeah. And maybe it's because there's been less controversy over Microsoft's business, at least in recent years. I think that might be it, where you have a Facebook where we all know about the privacy issues and then collecting data and so on. You have Apple that almost has a monopoly with, well, a duopoly, I would say, with Google when it comes to your smartphones, right?

It's either Android or Apple iOS, and they have their app store. It is important to note that Samsung owns that hardware. Yeah, yeah, they do. That's true. But the actual, the operating system. Yeah, they do. That's true. But the actual operating system. Exactly. So I think that, there are competitors, obviously, to those systems, but it impacts businesses probably a bit more than consumers. That would be my guess. Yeah.

And I think that that narrative exists. And I think that that narrative is questionable because of the fact that it is, like you said, kind of being disguised as this B2B business. And a lot of it is, right? Their bread and butter is that commercial cloud business, the commercial cloud segment, which includes Azure, includes Microsoft Office 365, these big B2B subscriptions. I get that. But then also, Windows is a B2C, LinkedIn is B2C, Xbox is B2C. The list goes on and on. Even Outlook and their Microsoft Office suite is still B2C in many, many ways. So I think it's been quietly labeled as a B2B company and been able to do whatever they want. But I don't know how much longer that goes on. Yeah, no, exactly. I think it's probably just

a perception from regulators. But clearly, like you mentioned, they have a lot of B2C, nothing new from Microsoft. So I mean, it's just very interesting how they view it. That's for sure. You brought up that good point by saying that, because if you saw Google or Facebook or Apple making this acquisition, I'm not sure regulators would let it go through. Yeah, it's very interesting. I've been chewing on it for the last 48 hours about like, why is that? And I came to the conclusion that Nancy Pelosi must own a bunch of Microsoft stock. Oh boy, of course, you have to get political. Of course. Here is the part from an antitrust perspective questions that we have. So right now, the stock is trading below what the deal closes at. So there's some arbitrage based on will the deal go through, yes or no. Now, it might get icky if the regulators dive into the Xbox and owning that hardware ecosystem.

Because this is where things do get icky in terms of them being able to decide which platform the IP is distributed on. And that's where the antitrust question should come in. And that's where the antitrust question should come in. If they're going down the correct path, and I'm not in lawmaking, but if they're going down the correct path, it's around the distribution and the fact that they own the Xbox. So the CEO of ATVI, Bobby Kotick, who has been in hot, hot water for many reasons over the past year, and their stock has suffered as a big reason for that he will continue to serve ceo once the deal closes it will report to phil spencer the ceo of microsoft gaming so yeah i mean there's a lot to unpack here yeah yeah exactly it's a big deal

and for me i mean you did a great breakdown of the deal and the franchises obviously that they're acquiring personally the one i've played the most before i give my a bit of a different take on this deal is the diablo franchise did you play some diablo yeah specifically when i was younger diablo 2 and i'm playing when i have you know a half hour here and there sometimes i'll play a little bit because they came out with diablo 2 resurrected i think it's like a remake of it. Yeah, exactly. Basically the same game, but nicer graphics because I don't like the third installment, but they're working on the fourth one. But personal preference aside, for me, this is really Microsoft saying that they're betting

big on the metaverse like Facebook or Meta is doing. I know I'm not the only one having this take, but I'll give a little bit more context to this. So obviously this comes after Facebook changed its corporate name to Meta last year when Zuckerberg also had been talking about the Metaverse for some time. He's been talking about that for at least a couple of years now, right?

Yeah, especially when he went big in with Oculus. Yeah, exactly. And now with the acquisition, it's clear that big tech is taking notice and microsoft is trying to position itself into the metaverse here and the reason i'm saying metaverse is because people might think well you know all the games you're talking about what does it have to do with metaverse well i did a little bit of digging here and people might not know but fortnite the very popular game is a little bit of digging here and people might not know, but Fortnite, the very popular game, is a great example of the potential because Travis Scott, did you know he did

a concert in Fortnite in 2020? I didn't know. And I actually looked at it on YouTube yesterday when I was doing research. And the actual concert within the game drew 45 million viewers. And the actual concert within the game drew 45 million viewers. But the YouTube video that I watched, the official one, had 178 million views. Oh, my goodness. Yeah. And you're essentially watching someone like you're watching Travis Scott in the game is Avatar, like singing a concert.

like singing a concert you know the potential that it could have here that these type of events i'm just taking this one but they could monetize people wanting to have a special avatar to be close to it or be able to be featured on the stage with them for a cost like there's all these different kinds of possibilities and this goes down like the nft rabbit hole as well right like some interesting conversations come up there. Yeah, yeah, exactly. And the most fascinating part for me is the battle of the metaverse, how it will pan out. Not only the one that we're starting to see here with Microsoft and Meta, and I'm sure Google will probably enter this space as well.

Apple, I'm sure we'll see some moves made by big tech. Not only these two players players but more of them but also whether like you just mentioned if it'll be a more centralized version of the metaverse or a decentralized metaverse and I think that's one of the biggest questions obviously centralized would be represented by big tech here but decentralized application built on programmable blockchains like Ethereum, for example, could be the competitor. People might think there's no way something decentralized could compete with big tech. And I would say don't be so sure, especially if the decentralized games offer a plan like you remember when we had discussed Decentraland, for example, or if they go for a model that's a play and get paid model.

Play to earn, right? Play to earn. There you go. I was looking for the term. If it's a play to earn model, I mean, it could entice a lot of people going to that decentralized platform instead of the centralized version. Obviously, Facebook, Microsoft, and all other big techs, they could try and get a model where people could still play to earn as well. But it's just fascinating to see how quickly this is evolving and seeing the investments being made in this space. Let's not forget, it's a $70 billion

investment. And I don't think Microsoft would be making that bet if they didn't think that there's a lot of opportunity in the metaverse in the future. Yeah, I think that that's a reasonable take. And let's just think of that aside, how big gaming is becoming. I saw some stats because of the acquisition I'm digging in. Microsoft was providing some stats. They estimate that 3 billion people play video games on planet earth. And it's like, it is the fastest growing form of entertainment in the world right now is gaming.

And it seems so strange to me. Maybe it's anecdotal because I don't play any video games anymore, but I'm not a good sample size for what is actually happening. It is the largest, fastest growing form of entertainment in the world right now. And Microsoft already owns a huge piece of gaming and now they own more. Yeah. And let's not forget a little company called Amazon too. And the fact that they have Twitch. Twitch is extremely popular with gamers. I mean, there's gamers that make six figures just playing video games and streaming it. I know there's poker players. Even seven, man. Even seven figures.

Yeah, six, seven figures. People make a living doing that. And I think we should not underestimate Amazon here. I would not be surprised. They made a move with amazon prime video right they invested a lot in the content i wouldn't be surprised if they invest a lot in gaming as well in the next couple years yeah side note with amazon is they just gave a hard date in september for the lord of the ring series on prime and dude i'm gonna watch the crap out of that like i love lord of the rings so i'm pumped for that question for you does your girlfriend like it victoria hates dude i i don't know if i'm gonna be able to get her to sit down and watch lord of the rings with me but i don't care uh same for me and my buddies will get together and like drink beers and watch

it and it'll be amazing yeah yeah no i saw that too. The trailer is like a big tease. You don't see anything. I watched it and I'm like, oh, this sucks. And I'm pumped regardless. 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

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Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, blossom social in the app store and I'll see you there. Moving on to a completely different topic. A couple of weeks ago, I talked about pensions and I talked about DB pension plan. And I said that I would talk about defined contribution pension plan and what they are. So I know a lot of people are on these types of pensions. So it'll be good to just wrap your

head around how it works. And there's definitely an investment component to it. I know, Brayden, you'll be interested in chiming in for that part as well. So a DC pension is very different from DB. The DB pension is a promise that you will get a certain amount of money at retirement based on a pre-established formula. If you want more info, go back to the episode that I talked on that a few episodes ago. A DC pension, on the other hand, does not give you any promises. What happens is you will contribute a percentage of your salary to your pension and your employer will match your contributions. For example, you could have a DC pension where you have the option to contribute five, six, seven, or eight percent

of your salary and whatever you contribute your employer will match it one for one. The matching here is one of the most important parts because not all DC pension plans are created equal. Some employers will match say 50 percent%. Some will match one for one. Some will even match more than your contributions, and those are the most generous ones. Some might match to a certain level, so they might cap it. So they might match up to $5,000, and then after that, they don't match anything. One thing that everyone should do, in my opinion, if you're part of a DC pension plan, is really maximize your employer contribution. So in the example I gave, if you have the option of

5%, 6%, 7%, or 8% and the employer is matching one for one with no cap, well, if you can't afford it to contribute that 8%, it makes a whole lot of sense to do that because it is a free return on your money, in my opinion. All the contributions are pre-tax and they lower your taxable income. So it works in a similar fashion to an RRSP, but it is a registered pension plan and not an RRSP. Any comments on that before I go to investment choices? No, not particularly. I think it is important to understand the difference between DB and DC pension. Now, correct me if I'm wrong here for people who are listening, there might be a good way to summarize this in their brain. DB pensions are very common from government, correct? That's correct. And DC pensions are very common from corporations

if they have a pension. That's it. Exactly. So in the private sector, you'll see a lot more DC pensions. In the past, you saw a lot of DB pension, but that reason that I mentioned, it's a promise to pay you based on a formula. The issue with that for corporation is that it's a liability. So that's the biggest issue. Whereas when they provide the money to you upfront, then they're done. There's no longer liability. So that's why a lot of corporations are switching over to defined contribution plans. So now the fun part is you actually have investment choices.

So obviously I say the fun part because if you're listening to this podcast, it means that you at least are interested in investing. So the money that you and your employer contribute will go to an individual investment account. And there you'll have usually anywhere from one investment choice up to 20. Most plans will actually range from 5 to 15 choices. Usually you'll have one choice that will be a target date fund. A target date fund, for those who are not aware, is essentially a fund that adjusts automatically to a more conservative profile as you get closer to

retirement. Usually, you'll see the fixed income or bond allocation increase as you get closer to retirement. And to me, this is what actually most people will be invested in for those pension plans. That's what the data shows. The reason for that is a lot of people are not interested in investing and we're obviously trying to change that with the podcast here. But a lot of people are not interested, don't understand it, find it overwhelming. So for the most part, these options should be fairly low cost as well. So it is a good option for those who have really no idea what they're doing. The other choices will be aimed at those who want a more hands-on approach. And it's probably

where most of our listeners to this podcast would fall into. The funds that will be available. So you have a list of funds, like I said, usually around 5, 10, 15, and they are institutional grade. So some might be actively managed, some might be index funds like an S&P 500 index fund, or even an S&P TSX index fund. So the principles when selecting your funds are really the same that we've talked about when we talk about ETFs, for example. So if you do that more hands-on approach, you want to make sure you review the fun facts, including the holdings and the management expense ratios. And one thing that's important here is that if you find that the fund selection is really not good or the fees are high, make sure you let your employer know. Usually going to your HR department will be a good start

because typically they will be the ones that will manage the pension plan. But that is somewhere you could go because what tends to happen is these pension plans are with large insurers and the insurers will give the employer a selection of say like 200 funds that they can pick from and offer their members. But if they gave those 200 funds first, there'd be tons of overlapping fun. Second, it would confuse a lot of people. It would just be too many choices for the average person. So that's why employers will tend to select about 5 to 15 from that selection. But there's usually some flexibility for them to change it if there's a willingness on their part to do so.

them to change it if there's a willingness on their part to do so. Yeah. It is a good thing to bring up the fees here because unfortunately, sometimes you get funneled into these high fee S&P 500 index funds. It's like, why am I paying half a percent management expense on something I can get from Vanguard for five basis points, like 0.05%. So that part is frustrating. The part that you basically do it anyways, is the fact that there's the matching. And so you kind of, you go, okay, the fees suck, but they're matching it. And that's more important than the 45 basis points that I paid in fees when I could have done it more efficiently on my own. That's just the unfortunate reality of that, I would say. But my recommendation here is to not get too cute with it because I've seen what these pages look

like. They're like online portals and you go in there, you're like, okay, I want to do 50% of my portfolio in the S&P 500 and 25% in a real estate index fund. There'll be all these kind of portfolio allocation decisions. Again, don't get too cute with it because a lot of them will be fairly similar. And if you go fully just in the S&P 500, that makes complete sense to me personally. Yeah. Yeah. And exactly. And like I mentioned, there should be some low cost options like the ones with my employer. There are some options under 10 basis points that are index funds like S&P 500. So there are options out there that are very similar and actually oftentimes like slightly lower than the ETFs that you can find. So if you're seeing something that's 1%, yeah So if you're seeing something that's 1%,

yeah, if you're seeing something that's 1%, that's high. And I would definitely, personally, I would stay away from that because 1% is quite high. But at least if you have the option of going to something lower, definitely look at the lower fee option if all other things are equal. Yeah, like if there's an S&P 500 that they're offering for 10 basis points or 0.1%, that's the same thing, by the way, and then they're offering something that's like 80 basis points or 0.8%, and it's like some cutesy specific type of fund, just don't bother. Just do the S&P for cheaper. You'll probably get better returns long-term. there. Just do the S&P for cheaper. You'll probably get better returns long-term. Let's switch gears to the late, great Lou Simpson. Rest in peace. So in 1979,

Geico was looking for someone to run its investment portfolio. It's an important job in an insurance business because you have to run the float. The float, for those who are unfamiliar with insurance, is the money the insurance company gets to hold on to between the time customers pay premiums and they have to pay out their customers when they make claims on their insurance policy. This is the beauty of the insurance business and the reason that Warren Buffett likes insurance so much and a big part of Berkshire's success. So part of the hiring process for Lou Simpson included an interview with some guy we all know named Warren Buffett. After four hours, they sat down for four hours, Warren Buffett and Lou Simpson, and Buffett recommended that Geico CEO hire him immediately.

Simpson. And Buffett recommended that Geico CEO hire him immediately. So Lou Simpson recently, very recently passed away on January 8th at the age of 85. So just a few weeks ago, I found a summary online of Lou Simpson's investment approach that he wrote. And it is awesome. When he passed away, many people were sharing not only how good an investor he was, but also describing how awesome of a person and kind he was. And I found that those things shine through more often than even how good of an investor he was. And that's what he was famous for. And so it's just an important little tidbit on your legacy and reputation as well. So anyways, I found this approach that he wrote about describing his investment approach. And some of it I've summarized and some of it I've shortened so that I'm not

sitting here reading it off for the next hour. But the first thing that he wrote is called Think Independently. He said, be skeptical of conventional wisdom and avoid waves of irrational behavior. It leads to excessive stock prices and losses. Don't ignore unpopular companies. These present the greatest opportunities. This is a theme we've talked about a lot. And it's kind of like, look where people are overly pessimistic. And then also look at things where people are overly optimistic and figure out if there's some reason for that, that you could take advantage of it, especially if it's the industry you work in. I personally think, if you are an expert on some business because maybe you work in it,

oh, say you work in oil and you could have known the price of oil. I mean, it's impossible to know, but you had an inside track on how these companies are worth a lot of money. Let's look at some high quality ones like CNQ or Suncor. A lot of people who work there are just like, these companies are worth way more than they're trading for, and now they're making lots of money on that. So that's just a random example. But the point here is to think independently. Pay only a reasonable price, even for an excellent business. Even the world's greatest business is not a good investment if the price is too high. Now, this is very relevant right now, Simon, because let's look at ones that are easy to dunk on right now. I'm not going to comment on the

business, but like Peloton, it just went to prices last year. Momentum's a hell of a drug. Traders were getting into it. I think it had this retail frenzy around people who really like the product as well and are buying it at any price. Even if the company is great, when you pay a ridiculous price, it doesn't matter. Your returns suck. We were just talking about Microsoft. Let's use Microsoft as an example. If you bought Microsoft shares at the peak of the dot-com bubble, you had a negative return if you held shares all the way until October of 2016. 16 years of waiting. And obviously, it was an excellent business, and you paid an unreasonable price.

Number three, invest for the long-term. I'm going to read here something from the summary because I thought it was particularly interesting. Attempting to guess short-term swings in individual stocks, the stock market, or the economy is not likely to produce consistently good results. Short-term developments are too unpredictable. On the other hand, shares of quality companies run for the shareholder stand an excellent chance of providing above average return to investors over the long term. So he's basically saying, if you're doing this for a long time, one, don't worry about short-term developments. And two, they're random and impossible to predict.

So spending another second worrying about it is silly. Just look at good companies and hold them for a long term, especially ones that are capable of producing above average returns. And last one here, which is do not diversify excessively. Quote, we concentrate our holdings in a few companies. So he says that they concentrate aggressively into companies that meet their investment criteria. When they think they have found a good idea, they make a large commitment. So it speaks to a very common school of thought, especially around the Berkshire crowd, which is do not diversify. If you own really great companies, there's no point of buying subpar ideas just for the sake of diversification when realistically your best ideas, you may already own them and you might need to just add more capital into them. Yeah. Yeah. I really love the

think independently. I think the one thing I'd add here is you want to be investing in company that maybe they're unpopular right now, but the market is just looking at the next year or two and not seeing the bigger picture down the line in 5, 10, 15 years. And Amazon has always been a great example of their future potential that the market was only looking right now. Obviously, the valuation was always quite high, but I think that's something I would just put a little asterisk there. You want to see a company that may be a little bit down on its luck versus the market, but long term, they have a plan in place. And the diversify, I mean, yeah, that makes sense because the more you diversify, the more you'll probably tend to just follow the market returns. And if you're going to do that, I think personally, there's some very good options that don't require a lot of work

that will give you that diversification without having to think about it. Yeah. Like Simon, if you ever catch me owning more than like 40 stocks in my portfolio, you sit me down, you press sell on everything I own, and you buy me an index fund, and I won't look at my portfolio ever again. That's how I think about this stuff. Because if I'm putting the time into managing my portfolio, I can't be aggressively, overly diversified. It kind of defeats the whole purpose because I could easily, so easily buy an S&P 500 fund for dirt cheap and do nothing and do absolutely nothing. That's probably a good option for many people. Yeah, yeah, exactly. And we've talked about it time and time again,

and I'm sure we will. It comes up a lot in our mailbag questions, but there's nothing wrong with owning an index fund. There's nothing wrong with owning just stocks, but there's nothing wrong with owning an index fund. There's nothing wrong with owning just stocks and there's nothing wrong with a combination of both. Anything else on that or do you want to move over to the next segment? Before we move to the last segment, I do want to double click on that think independently thing because it is so important because it's extremely easy to fall into groupthink, especially if you manage money professionally. You'll fall into groupthink with the people you work with typically. The fund managers talk about this all the time. And it's a really difficult dynamic in your office

to have independent thinking and actually drive good alpha for the fund because you have this groupthink mentality. And especially right now, there's a lot of crowded trades. There's a lot of crowded names. And for Canadians listening on this podcast, there are so many awesome Canadian companies that no one looks at. Just straight up, no one looks at. Maybe it's too small. Maybe it only trades on the TSX. Maybe they only do business in Canada, but they're looking to expand globally. These are just random examples, but I have found some of the best returns on things that no one's looking at, just trading on the TSX for dirt cheap. And so I think that that's particularly relevant to our listeners.

Yeah. Yeah. Well put. I think just the analysis there is extremely important. So you can find some good value, but you have to think independently and making sure that you make the right analysis. Obviously, you'll win some, you'll lose some, that's fine. As long as your batting average is high enough and your winners outweigh by a good margin, your losers, you'll do all right. Yeah, especially if you hold on to winners, right? That'll correct a lot of the mistakes is when you really hold on to compounders. It'll far outweigh all the mistakes you make. 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. Calling all DIY, do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom

Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, blossom social in the app store and I'll see you there. Now on to our last segment, I referenced this in our earnings episode that we released on Thursday last week. And

essentially, I wanted to look at where salaries are going. So more specifically, I found a study that looked at frontline workers and if they're seeing their purchasing power increase. Because we've talked about it. We've had anecdotal evidence. I mentioned, I think, coming from Syracuse, I saw some advertisement for McDonald's where they were offering $15 an hour and they were giving interviews on the spot no matter the time of the day. And when I came across this study from Brookings Institution, which is a nonprofit based in Washington, D.C., I thought it'd be interesting because there's also an investing component here. So the study looked at

frontline workers. And like I said, if they're better today than compared where they were when the pandemic started. So we talked about this in length. A lot of jobs have seen salary increases, especially these retail, restaurant, supermarket jobs, which are traditionally a bit more low wage. Yes, the study was done in the US, but with the companies that they've studied, I'm pretty sure that it's comparable in Canada. Obviously, we don't know for sure, but I'm going to go on a limb and say that you can probably make that conclusion for Canada. So the average increase in pay, inflation adjusted, was 3%. The actual increase was much higher, but the inflation adjusted was three percent the actual increase was much higher but

the inflation adjusted was three percent and some of the companies that were looked at i'll name the ones it was 13 companies in total and you'll recognize a lot of these names amazon walmart starbucks macy's chipotle mcdonald's targets c CVS, Walgreens, Kroger, Best Buy, Gap, and Lowe's. So a lot of these we actually have in Canada. So Braden, a quick take. I have a table here. I know you guys can't see it, but essentially the top change in pay was actually Amazon in a real money change. So inflation adjusted. They had a 10% increase in their wages. When you look at the actual pay increase without taking into account inflation, it was 17%. Yeah, I'm seeing nominal change for Amazon and Walmart, both at 17%. So that's the same. And

like on real change, they're basically the same as well. And I find that interesting, one, because of course, they're competing for the same workforce. If you think about it, they're competing for mega retail, and they need workers to fulfill the absurd demand that humans have an insatiable thirst for crap. And so that's kind of why you're seeing this and getting all the people in this environment to be able to fulfill what they are doing requires an increase in incentives. And you follow the demand, you follow the incentives, and it makes a lot of sense. Like, honestly, it really does. Yeah, it's funny that Target saw a 3% increase and they're in the same kind of business, right? When you think about it, so large retail with Walmart and Amazon, when you have Walmart

and Amazon 10 and 9% respectively. So I found that interesting. And then middle of the pack, you have the fast food change with Starbucks, Chipotle, McDonald's around 7, 8%. And these are all inflation adjusted figures, because that's what I wanted to look at. And that's what this study looked at here. And then behind the pack, you have other kinds of retail, I guess, a little more traditional Best Buy gap lows. What would you call that? Yeah. You know what, I look at that. And I think

the data may be a little misleading, because already you had those workers have above average. They had the lowest nominal change, Best Buy, but on this list, second in terms of their hourly wage for their workers. It's kind of one of those things where you can splice data any way you want. It's like, oh, look, they didn't increase wages. And it's like, yeah, because we were already paying them more than you were paying. We were paying our competitors. Our competitors are paying their employees, sorry. So I think that it is worth mentioning that as well.

But I mean, we're looking at pretty sizable changes. But here's the thing that I'll question this, and I'm sure you'll have some hot takes on as well. It says real change. And we already have questions about what CPI really is and how accurate it really is. So real change is difficult to actually measure, but it is interesting to see nominal change of like 17% increases in wages for a lot of these frontline workers, especially in this big box retail. Yeah, no, and that's a great point, right?

It's how do you measure inflation? And yes, they use CPI data, but also one of the things they did mention is the changes, like this was the average. So obviously, depending on which part of the country the workers were located, then they saw different type of changes. So that's something else to take into account. then they saw different type of changes. So that's something else to take into account. From my perspective, I mean, I do want, you know, a lot of these type of workers, like if you're thinking about supermarkets or grocery stores, or even Amazon delivery people,

Amazon worker as a whole, right? We are very dependent on them for living our everyday lives. And the one thing that the study said is people are still having trouble in a lot of these jobs making ends meet. And as a shareholder of Amazon, for example, that's something that to me is important as a shareholder. I want to see people being able to at least make ends meet, being able to live at least a minimum without having to work more than a regular work week in terms of jobs. So I think that's probably one of the things. And it'll be interesting to see, this is frontline workers, the data was not looking at other types of job, whether it's

more blue collar type of jobs, more white collar type of jobs, they weren't looking at that, whether it's more tech specific. I'll try to see if I can find a study in the next couple of months that looks at those kind of jobs and the type of pay increases that's been seen across those industries, because it'll be interesting to see if it kind of follows this trend, whether it keeps up with inflation, slightly above, below. I think that'll be very interesting to see because like Jamie Dimon said earlier this week in the earnings release, the cost of labor is increasing and it's putting pressure on their margins and it's going to put pressure on a lot of public companies margins. And it's something to really keep an eye out on when you listen to the conference calls, when

you listen to the CFO, the CEO talking, make sure you make note of that because they will be talking about it. If it's a big item, if they're seeing it increase, just listen carefully what they're saying, because that'll give you a good indication on a potential contraction in margins, at least going forward for the foreseeable future. I have two thoughts here. One, how important pricing power is, because if you have increased input costs like labor, like if it's on your SG&A or it's the increased cost on your cost of goods sold that's going to affect your gross margins, If you have pricing power and you have true pricing power, a lot of those problems go away. And that is the beauty of companies with

pricing power. And number two is that Costco is the perfect model to understand the dynamic between having good culture, paying your employees well, and having a balanced approach to your corporation instead of just putting shareholders first all the time, shareholders can get massively rewarded, aka Costco, check out Costco, and have the perfect balance between stakeholders, employees, shareholders, everyone. And I think that that's an important piece. Yeah, no, Costco is such a great example there. Because when I got out of university, I was the job market wasn't what it is today, where a lot of the power was in people's hand companies are looking for labor and so on. And Costco was actually someplace I thought about working because they offered pretty good pay, good benefits. It made a whole lot of

sense. It probably wouldn't have been my forever job, but as a job coming out of university, I definitely thought about it. I ended up getting a job elsewhere, but it's something that I came across. And the last thing is I mentioned Jamie Dimon, but you know who doesn't really have pricing power? Banks. Banks. Banks don't. And Jamie Diamond made that very clear. Well, maybe not on net interest margins, but they do in other ways, I think. They do, but it's not as clear as other businesses. And I think they don't have as much of a margin for increasing prices or fees as you would have in other types of companies. So I don't think personally they do have a lot of pricing power because yes, it can be a bit of a

pain if you're a client at traditional savings and loans type of banks. But as a customer, you can always change. Obviously, there's all different kinds of banks and I'm not going to get into that. There's investments banks and all that, and I'm sure they have different kinds of pricing power. But in my view, banks typically don't have great pricing power. And I mean, Jamie Dimon said that the increase in wages will hit definitely their bottom line. He was pretty direct about that. Yeah, fair enough. I would say they have some pricing power, but they don't have true pricing power, the type of pricing power that gets me excited. Speaking of pricing power, before we wrap this up, Netflix has unbelievable pricing power. And you guys know on this podcast, I am first to call myself out when I'm just blatantly

wrong about stuff. I was blatantly wrong about Netflix's pricing power. I thought customers would be so much more price sensitive when they continue to increase at far and above inflation per annum on their subscription for their different packages to be a Netflix subscriber. I was just flat out wrong. Dude, customers will keep their subscription no matter what. Like churn on this subscription has nothing to do with price. I'm pretty convinced of that at this point. Yeah. Yeah. No, I mean, I think I wasn't at the same point that you were, but I thought there'd be a limit to the amount of increases they could do for sure. I won't. I did, I for sure didn't think

they could increase as much as they did. And I think one of the reasons that they're able to do so is they have really good content. They've really- That's a stretch. They have a lot of content. They have a lot of content and you'll find good content for what you like amongst everything. Right. I think that's probably a better thing. I'm sure everyone has at least one or two shows where you're keeping your subscription for basically those two shows or those two movies. And I think the other thing too is people will share the most expensive subscription with maybe one or two family members. And if they cancel, then they have to let that other family member know.

And that sometimes will not fly quite well. So I know I'm in that boat. The group chat will get stirred up immediately on the fan. We need to just kind of charge for like, you know, the extra people using it because we're the ones paying it. Yeah, there's got to be some like cost splitting mechanism there in Netflix. This is so off topic. We're here at the end of the show, but I just watched the Korean film Parasite on Netflix. Have you seen that?

This thing cleaned up at the Oscars. I finally watched it this weekend with my girlfriend and I loved it. I heard of it. I saw the trailer. We definitely want to watch it right now. We're on Yellowstone and we just finished season three. So anyone listening to this, first of all, don't tweet me to tell me what happens for season four because it's like the most.

That would be sadistic to do that. Oh, it's the biggest cliffhanger ever. And last night we watched the last episode and I was like, we have to watch it. Victoria's like, no, it's two hours. Like it's already close to 10. we have to watch it victoria's like no it's two hours like it's already close to 10 so we're we're going to watch that tonight but i definitely heard of it and korea has done some pretty good movie i remember when i watched like 15 years ago when i was in taiwan my roommate over there was like oh you should watch this movie and it was this kind of a horror movie but i understood half of it and

it was still really good because it was just like korean horror movie but i understood half of it and it was still really good because it was just like korean with chinese subtitles so i knew a little bit of chinese so i tried to read as you knew enough you knew enough mandarin to do chinese subtitles for a korean movie no i knew enough to mismatch with body language and what's happening. I was going to say, like, are you a savant? I'm not. That would be crazy. That would be amazing. That does it for this episode, guys.

Thanks so much for listening. We appreciate you. We are on the road to doubling our audience this year. It's a stretch goal for Simone and I, but I think we can do it. All right, guys, we really appreciate you though, for real. If you have not given the podcast rating, share it with a friend, really appreciate you do that. If you're looking for good data, good data, high quality data and tools for self-directed investors, I built Stratosphere

for you. It is my baby of a company. I really appreciate you check it out at stratosphereinvesting.com. And that is the easiest way to actually engage with Simone and I too on the community forum. So if you ever want to ask us questions, that's a good spot to go at stratosphereinvesting.com. You can sign up completely for free. We'll see you in a few days. Peace. The Canadian Investor Podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.