The Canadian Investor - The Battle for Search and a Strange Niche ETF

Episode Date: February 13, 2023

I this episode we discuss the news of Microsoft incorporating Chat GPT into Bing and what potential future implications it could have for Google’s dominance on search. Simon then goes over Brazil’s potential as an emerging market investment. We then go over bottleneck businesses and finish with the discussion on a couple of strange niche ETF. Tickers of stocks discussed: NANC, KRUZ, FLVR, EWZ, EWZS Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital 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. Register for ShakepaySee 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. Today is February 9th, 2023. My name is Brayden Dennis. I was always joined by the perspicacious Mr. Simon Belanger. Today on the docket, we got lots of fun topics. We're going to talk about AI,

the war between two giants. You are continuing your exploration into the emerging markets. Today, you're talking about Brazil, correct? Yeah, that's it. Cool. I'm going to talk about bottleneck businesses, distributors that kind of sit in the middle of really interesting supply chains. I think you'll like it. It's RSP season. We can talk about that. And lastly, a listener question about the Nancy Pelosi ETF from Chris, one of our listeners. So I'll round out today's show, but the Nancy Pelosi ETF, which should be fun. I learned quite a few things actually while investigating. But first, let's have an open conversation, a casual conversation, basically summarizing our text

messages with each other yesterday. And I'm like, let's save it for the pod, man. Too many good ideas going back and forth here. We saw obviously obviously, yesterday, or I guess the day before, Microsoft released their new Bing, which is integrated with chat GPT, the LLM AI that has kind of taken the world by storm. It's, you know, being talked about in casual conversations at this point, the generative AI chatbot that, you know, it's gotten quite famous. What's your takeaway? I mean, of course, Google and Microsoft are now at war. This is wartime stuff, and they're competing for a very important market, which is search. Yeah, I mean, first take is clearly, you know, the market is bearish on Google.

Like, I know where it's down, what, like 5% again today? I haven't checked recently, but it was down, what, 8? I think it was like 8 yesterday, another 6 today. Off the back of a pretty strong start to the year, but all else being equal, yes, that's true. Yeah, so I think the market is almost like thinking Google will go extinct, which is not, you know, I think it's a bit of a stretch. It's ingrained in people to use Google. I'm not saying that Microsoft and Bing won't take any market share from Google.

And clearly, for people not familiar, the vast majority of Google's revenue does come from the search engine and ads related to that. So clearly, you know, it is a big threat when it comes to Google, especially if there's a large migration to Bing itself. But at the same time, I think it's good to not panic, just take a step back and just see what happens. Personally, I think we talked about that is I'm definitely going to make sure I listen to all those earnings call at this year, just to get a sense of what's going on with Google. Because if we start seeing some erosion of their market leadership there, that will probably kind of show up in first how management responds to questions

from different analysts, but also in the financial results. So that's the approach I'm doing. But it's also a quite small position for me. Google is like just around 1%, just a bit less, and Microsoft is closer to 1.5%. So I am a little more overweight Microsoft if you want. Yeah, I'm just glad that I mean, I've made some mean, I've made some really poorly timed investing decisions, and recently some very good timed investment decisions. Sometimes it just works out that way. Long term, we've both done extremely well. But in the short term, I thought to myself, I need to de-risk my Google position. And I did. I talked about it here on the podcast.

And I talked about it on join TCI.com, where you and I disclose our public portfolios. And look, the reality here is the markets hate uncertainty. And for so long, there has been certainty that Google is the de facto search engine. And today it still is. So there's no knee jerk reaction needed. It's still a sizable equity position for me today. I think all of the ecosystem that they have reinforces it. When we're talking about maps, for instance, like there's so many reinforcing layers into Google search that the, you know, a little bit of negative price sentiment, and we throw it all out the window. I won't do that. But what I have talked about is, you need to match your position sizing to conviction. And search, I am convinced will look different. It's not that Google's gonna

like, you know, their other market share is going to evaporate. But clearly, machine learning is changing the way that we're interacting and gathering information. And so if things are different, you know what monopolies don't like different. And so that's just something I've tried to be aware of. Now, there's a couple interesting things here. The iPhone default search contract that Google has with Apple, if that goes up to bid and one of these companies, Google and Microsoft, start paying $25, $30 billion to Apple for this contract, that's totally in the realm of outcomes. And it's not good, right? Competition for Google here is just

not good. It's going to cost them more for that contract and potentially slipping market share. I'm not saying that it will. Did you see their kind of blunder of the demo showing their chat GPT competitor called Bard? No, I didn't see that. This is just why I'm a little not convinced that they're completely handling this all very well. They released a YouTube video, hype video, showing off their new generative AI competitor to chat GPT. And they said, yo, it's been in the works for so long.

Okay, whatever, sure. It showed in the video bard answering a question incorrectly and they had to take down the youtube video and like restart their marketing video messaging it's just like ah you guys were in such a rush to try to put something together uh for this that you kind of you kind of blundered it. And Satya Nadella and Sam Altman have that dog in him, both of them. Two guys I would not want to compete with, with Microsoft and OpenAI and how connected their relationship is, how all of that workload's going on Azure. It's tying very well together. So yeah, I'm interested to see how it plays out.

What are you thinking? Yeah, I mean, it's definitely the AI space has been, a lack of better words, like the hot thing right now. So I think a lot of people are thinking it's going to change everything and everything's going to be different. I think obviously it's going to be a big force. It will change a whole lot of things, but I think it remains to be seen how disruptive it will be. So that's the first thing that kind of comes to mind there. People are making some quick assumptions. I mean, we're seeing it with the Google stock, right? So people are just kind of panicking. That's what investors are. I think they're just thinking like, okay, Google will become obsolete. You know, I think the truth will probably somewhere in between where, yeah, it could impact Google.

But again, like you said, I mean, it's so ingrained in people to use it. To what extent does it impact them? Are they able to integrate their bared AI into their search results? But there's just a lot of things that remain to be seen that I think it's good to take a step back here. One thing that comes to mind, I was listening to the All In podcast and their venture capital is they invest a lot in tech and they are way smarter than I am when it comes to that stuff. One of the things they were talking about is when you search on chat GPT, what happens for, you know, the information pulled because chat GPT

will pull that information oftentimes from other websites and give you that answer. So you can quote sources, but again, it may create some legal legal problems so they were discussing that and that could be a potential point of contention when it comes to these search results so something to think about there's still a lot of unknowns and clearly like you said the market does not like unknowns the market like when google had no competitors basically 90 of the market share if you'd like i think it was probably around there for search and now you know there's people coming at them with some really good products that remains to be seen if google becomes as hated as meta got hated in 2022 in terms of the share price, I could be very interested in buying more shares.

I'm saying, hey, look, there is uncertainty. Markets hate uncertainty. Investors hate uncertainty. I hate uncertainty. Of course, I want to be able to predict the future. But if this thing gets really cheap, sub 15 times EBIT, and we are getting there. We're approaching that for a world-class business with 90% share of search today. I could be very interested purely on the valuation and how much optionality the business has outside of search. Of course, it is their main source of operating income today. I think it does like what, $20 billion in operating income, like a quarter, just the core search business. So anything for a price, right? Like the price

gets interesting enough. I'll be looking at it. Yeah. And I think it's a good reminder to just in general, when you're investing, the best opportunities will usually come when there's a whole lot of uncertainty. I'm not saying that, you know, we don't know, maybe this will be like, you know, maybe it's the start of a debt spiral for Google. I don't think so. But I'm just saying there is variable outcomes. And when there's uncertainty, that's when you can oftentimes get some really good deals. But you have to be able to make the right assessment. And that's why it's, you know, that's and size it and size it correctly. The market is right. Exactly. And I think just that's just important to remember. It's not easy to do because sometimes when there's a whole lot of uncertainty, it goes sideways for the company. And you may be thinking you're getting a really

good deal and it just ends up being worse and worse. But what I'm saying is basically, yeah, when there is a whole lot of uncertainty, that's also when you can get some really good opportunities. Making sure, of course, you do proper analysis and you don't bet the farm on it either. There is a strong bubble forming in artificial intelligence. Markets do not rhyme, but they sure repeat. And any crappy small cap pump and dump mentions that they are an AI company now or puts AI literally in the name of the security

the stock has pumped. This is full on mania. Every year we have one. What was it last year or the year before? You just had to mention that you were a crypto blockchain company starting some ICO. You had like Kodak go like, you know, three and a half X and one trading day. This is complete garbage, but these traders need a saving grace. And AI seems to be the name this week, or should I say this year. BuzzFeed stock rose 330% in one day from saying, we're going to start using AI for our content. Anyone with a brain knows it's going to be bland, lacking insights and really lacking personality. We're still here in the early stages of generative AI.

So this is complete nonsense as per usual. The stock market casino is alive and well, as it always is. No, exactly. And I mean, it happens every year. We talk, you know, people will remember Canadians, the whole marijuana craze, cannabis stock, which now are, you know, a lot of them the big ones

are actually in a debt spiral pretty much so you have to keep that in mind i'm not saying ai won't change like we we meant we talked before it's just i think you have to take it with a grain of salt and not bet the farm just on hype because oftentimes we'll see it's just yeah you'll end up just buying the hype and then if you don't time it correctly you end up taking some pretty pretty heavy losses yep what's behind every bubble is just a lot of hot air and uh a lot of times that's why there's not a lot of substance inside of it so be careful it is the whisper stock of the day is the new AI companies. And a lot of them really don't have a real business at all. So just be careful out there as per usual.

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. And now we'll talk about, like you mentioned, I'm going to look at the Brazilian market from a investment perspective. I'll look a bit more at the macro, but I will give some Brazil specific ETF examples at the end. And obviously, it's not AI. But you know, you can still I think, make a case for investing in emerging markets. And especially right now, it feels like the markets are a bit down on those markets in the emerging markets. So I think it could be a potential good opportunity.

Now, starting with Brazil, I talked about India last week, foreign direct investment or FDI almost doubled in 2022 to 91 billion. FDI is always an interesting metric because it does show that foreign investors do see an opportunity in certain market. It's not been a linear trajectory for Brazil by any stretch of the imagination. Neither was it for India. And but there's a lot more up and down for Brazil. And there's various reasons for that. So if you go back for the 20 years, you know, the past 20 years, GDP per capita, which I think is a much better metric than GDP alone, because it accounts for population increases. And on a side note here, always be careful when you hear just GDP grew certain percentage. Because if you have an increase in population or immigration in Canada, we're seeing

a lot of immigrants come in, which is, you know, it's great, because we need more people and oftentimes are quite skilled. But if you don't account for the capita, it can actually skew things quite a bit. So you want to see that per capita actually go up over time. So to get back to that, it went up almost every single year in the past 20 years up until 2013, 2014, and then seeing some sharp declines in 2015 and 2016. It was then flat from 2017 to 2019, down 4.5% in 2020. We'll give him a pass on that because of course COVID and up 4% in 2021. Now when we're using 2015 US constant dollars And the reason why I'm using this here, and I didn't when I did India, I should have done it when I did India, because constant dollars actually looks at

inflation adjusted numbers. So it takes to account, it's more like regarding the cost of living, if you'd like. So it went from 6,700 in 2001, the GDP per capita to 9,200 in 2013, then down to 8,500 in 2021. So it's been all over the place here, and I'll explain why. But before that, for context, Argentina, the other major economy in South America, has a GDP per capita of 12,400. Now, the US, as a GDP per capita of 12,400. Now, the US, same constant dollars, is 62,000. But let's not think that Brazil will get to that level. That would be a bit ambitious. Now, if you're familiar with Brazil, you'll know there was an economic crisis in 2014, which would explain why the GDP per capita took such a big hit. The economic crisis was in large part due to dropping commodity prices. Estimates I've seen show that commodity exports actually are two-thirds of all

of their exports. And you can see, you know, Braden will be able to see, but I pulled the chart and you can actually see an aggregate of commodity prices. And you can see a pretty sharp decline starting in 2011 all the way to like bottoming around 2015. So that was a big cause because their economy is pretty reliant on that. And on top of that, you saw a political crisis following the economic crisis. A series of corruption scandals which were uncovered by operation car wash you remember that operation no what was that yeah it was like their federal police and it was a lot of like prominent politicians um were taking bribes um anyways i'm kind of simplifying it but yeah it was a big thing i remember um it was making the news was operation car wash uh

something done by the u.s to uncover this or was this done by them by the uh federal uh police over there in brazil yeah in brazil okay got it now the overall economy is also relying on the services sectors according to the world bank the service industry now employs 71 percent of the country's workforce now for canada it's around 80 so it's still pretty high in brazil if you compare that to canada um the population growth is a big factor here because brazil is a pretty large country for those not aware of the numbers the current population sits at 216 million it's been whoa yeah it's uh that's way higher than i thought it was i mean i don't look at that very often but that i would have guessed like half that oh yeah it's it's quite high and it's

you know it's the dominant country in south america by a large margin, whether you're looking at population growth or the size of the economy. Brazil is the dominant player there, but population has been growing at a slower pace, below 1% in the last decade. But still, if you compare that to more mature countries like Canada, US, or Western Europe, it's still a pretty good growth rate. Now, one of the issue in Brazil, which is probably, I don't know whether you want to say it's a tailwind or something that could hinder them, but poverty is still high. So you can make a case that, you know, as things progress, people coming out of poverty could be a good investment case. But it's been up and down here. It was trending in the right direction until the economic

crisis of 2014. And then that affected some of the poorest people in the country. And same for the COVID-19 pandemic. Now, the last thing I'll talk about here is the CPI, not the CPI we've been talking about, the Corruption Perception Index. Corruption Perception Index, CPI. I know. Yeah, the CPI is that's not really talked about, but it does India because I think when you want to invest, you don't want a country where there's too much corruption because that kind of creates a wild card for businesses. Some businesses may make it work, which there's some ethical questionings there, but something to keep in mind. And the way they work, it's a scale 0 to 100. And the lower it is, the worse it is.

So Brazil scored 38. India 40. Canada sits at 74. The U.S. at 69. And Denmark is a top country at 90. And that's corruption in public sector. So it just, you know, not necessarily in businesses. But obviously, if you want to do business, oftentimes you have to work with regulators.

So that's a bit of a wild card. And we've seen what can happen to business when they kind of deal with governments that are corrupted. And SNC-Lavalin is a good example there. I think, what was it? What was it? The country in Africa? Oh, it was the SNC-Lavalin scandal. Yeah, you know what I'm talking about.

I do. Libya. Libya, that's it. Gaddafi. Yeah, the Gaddafi regime. That's it. So that's always kind of a, you know, something that can be risky and can put really companies in a tough position and have some serious repercussions one

way or another. Overall, I think there's definitely still some growth in Brazil. And like I said, it's by far the most, you know, dominant power in South America. The second country, I would say, is Argentina. And it's pretty far behind. Brazil has the most. It's the largest country. Colombia is also 50 million plus as well. Yeah, yeah. But it's still, yeah.

And Brazil, the advantage for Brazil too is they have such a massive land area. So if you compare that to the second largest, which is Argentina, I think Brazil is like four or five times larger in that kind of multiple. So it just kind of gives you a bit of context here. I know it's a bit more macro, but when I look at emerging markets, for the most part, I like to do that through ETFs just because it can be a bit trickier to invest in companies directly. And the two main ETFs I found was the Franklin FTSE Brazil ETF, ticker FLBR, and the iShares MSCI Brazil ETF. This one, I believe it was EWZ. Now, personally, I'd go with the Franklin one because it's much lower in fees,

and the iShares one has 0.58% management expense ratio, and the Franklin one is 0.19. So a pretty significant difference here. There's also an iShare small cap, which is EWZS. And what's interesting, though, for people who may be interested in that ETF, make sure you have a look at the fun facts because the company Vale SA represents close to 20% of the ETF for both of them. I think it's actually a higher allocation for the iShares one versus the Franklin. But Franklin is around 17% and the iShare is closer to 20%. And Valley SA, I'm probably butchering the name, but it's a metal and mining company. Talking about Vale, right?

Vale. Yeah, Valley, Vale, I don't know. It's Vale. V-A-L-E-S-A. Yeah, Vale. And they have a market cap of close to $80 billion USD. And materials, financial, energy actually represent two-thirds of the ETF. So something to keep in mind.

But I think the case here is if you're betting on Brazil on an ETF like that, you're not only betting on the Brazilian economy, you're also kind of betting on the world recovery because they're so tied to commodities like I just talked about. So it's something if you think the world as a whole will be having a strong recovery in the years to come, you know, maybe even led by a country like India, for example, then Brazil could be definitely an interesting place to look to allocate some of your money. I don't, if you look historically, it's been so up and down. Like how many times in our lifetime has Argentina defaulted on their currency? Like it's just been such a difficult region to invest in.

I'll say geography. And I know all these countries are very different culturally, economically. But they do all have some of the same struggles economically. And that's kept me away from owning pretty much any of them. But if I had to pick one, you know, you and i have talked about mercato libre uh you've mentioned a couple etfs if you really are bullish on kind of uh the macro because that's what owning something broad-based is like you're betting on the the macro improving uh over time is that yeah on the overall economy exactly it's not you're not making a specific bet i know the historical performance i definitely looked at it as in perform although

well it's been a bit up and down but at the end of the day right history is not necessarily you know an indicator what's going to happen for it and it goes for u.s stocks too right they've performed awesome historically but at the end of the, we don't know what the future will come about. So it's something to keep in mind. Personally, I'm looking to add a bit more emerging market exposure. Not crazy amounts. Just kind of balance my portfolio a bit more and just having some exposure there. Because I think the markets overall are a bit

bearish on it and there could be some opportunities. I mean, India is just getting smashed by the whole Adani thing. Adani. Yeah. So, I mean, it's probably, especially India, like I know we talked- There's fleeing to safety in the US because stocks are going up again. Yeah. Yeah. And I mean, India is definitely an interesting case. I personally think for India, if you're able to kind of, you know, weather the storm, and just not panic, and look more long term, there could be some real opportunities. But again, I talked about the corruption index, and they have a slew of metal, like, you know, a method of doing that. And you can read up on their website how they do it.

But that's always a bit of a risk when you look investing in countries that there is some more corruption in the public sector. There is a bit of a wild card there. It's not like dealing in North America or Western Europe. MercadoLibre, I'm pulling up their segments and KPIs on Stratosphere. Total payment volume has caggered at compound annual growth rate at 53% since 2012. Their commerce revenue has compounded during that 10-year stretch at 37% and fintech at 45 percent uh just a dominant grower dominant in the region i'm pretty sure they're uh like brazil's their biggest market too huh brazil's their biggest market uh i believe it goes brazil then argentina and then colombia so it sounds and then a lot

sprinkled in there is lots of central america too. Yeah. I haven't seen any of it here, though. But I also wouldn't be able to go on the site and order it all in Spanish. So I don't know. Yeah, I think that's a good summary. Dude, it's just so hard to get bullish on the region. It's so difficult, but maybe that's why there's opportunity yeah and that's why you also you know you allocate accordingly right there's more risk um you know i'm not gonna go ahead and put like 20 in emerging markets but maybe you know five

to eight percent total maybe spread it around like three ETFs. That's something I'd be comfortable with. I still want to do a bit more digging, but yeah, there's some interesting opportunities. Let's just say that. I agree that there's certainly interesting opportunities. More due diligence is required, I guess is what I'll say. 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. All right, let's move on to what I'll call bottlenecks in a good way for shareholders. You hear a bottleneck and you're like, sounds like a corporate bureaucracy.

There's a bottleneck in this process, but here it is beneficial for shareholders. And I got a photo posted by JV on Twitter. I'm not even going to attempt to say his last name, but good lad. We've exchanged emails and DMs over the years. We actually tried to do dinner in Portugal, but you know how these things go on when you're on a family trip. It didn't happen. Anyways, he posted this photo and let me describe it for you. There is a bunch of red dots on the left and a bunch of blue dots on the right. Left is vendors, right is customers. And so he says, and there's a one green dot in the middle

that everything flows through. He says, every single business should strive to look like a distributor. Lots of customers, lots of vendors. strive to look like a distributor, lots of customers, lots of vendors. And while I agree with this, you basically have like tons of customers and tons of vendors in your supply chain. And you are the plug, you know, like you're the arms dealer in the middle here that makes this all happen. And while I agree with them, distributors can be great. They're not always the best because usually there's lots of competition, razor thin margins. And that comes with usually a lot of

different green dots in the middle. It doesn't usually always flow through this monopoly diagram. Think of like drug pharma distributors, like McKesson Corp and Cardinal. Big, huge, massive distributors that would fit the mold here, but the margins are terrible. Like that's their moat is who wants these margins? No one. So no one competes. So I'm reframing this a little bit as to be a bottleneck business, which has tons of vendors and tons of customers. And it got me thinking about bottleneck businesses, an article from

John Neff from Acquity Capital, which I've discussed a handful of times on the show and is instrumental in the way I think about businesses and moats that I want to own. Here's a quote from John. We think of a bottleneck business as one that is A, sits atop large global secular growth opportunities fed by multiple industries and geographies. B, has those opportunities funneled, hence the bottleneck, disproportionately, that's the key, disproportionately because of its sustainable competitive advantages, and C, enjoys exceptional economics, often superior to the industries and customers that the business serves. So that's interesting too, right? You sit in the middle

as the green dot, but you enjoy better unit economics than both the left and right side of the diagram. So that's interesting. And so I believe these lead to the most premium quality businesses, lots of vendors, lots of customers, but they have to flow through you the toll road with high margins and high stickiness. I look at this, this diagram, and I think of ASML, a stock you own and a brilliant business, tons of vendors, hundreds, if not thousands of vendors. I would say probably thousands, right? Because it's a hundred thousand different unique parts that go into one EUV machine and tons of customers because they're agnostic feeding the whole industry that critical machinery for the semi-industry um and these are fantastic businesses and uh you know you can't

just own them because there's really not that many of them that exist in the world but if you can buy them at a decent price like you did uh chances are you're going to do quite well. Chances are. Yeah. And ASML, I mean, I get what, you know, the graphic represents. But ASML is kind of a bit of a unique situation, right, where it's a monopoly too. Yeah, it's the only green dot. Yeah, exactly.

You know, even if you look at the duopoly like an Airbus and Boeing, for example, it's still a duopoly. One that comes to mind that is probably- Visa, MasterCard. Exactly. But one that comes to mind is actually Cisco Corporation, the food distributor. So this one is actually very- With an S, not a C. Yeah, S-Y-S-C-O. So S-Y-S-C-O, ticker S-Y-Y.

It's actually, I think the big... To me, it's like a great example because the margins are not tremendous, but they're pretty stable. I mean, this company is just... I was like pulling it up on Stratosphere and it's just steady as she goes. It's been quite a good performer over a long

period of time they pay a nice dividend and i know from just personal uh i have a friend of mine whose father used to own a food distribution a local one and it was just it got to the point it was at some point years ago a a very profitable business. But now there's just a few large players in the space and they just cannot compete with them because, you know, the margins are not great. And these big players just are, you know, make tons of money. Yes, but because they have the distribution and scale. So that's the one that comes to mind that when i saw that graphic yeah yeah exactly and and that's a perfect example of a great distributor business i mentioned

uh very similar but distribution for health care uh drugs which is mccaskin corp and cardinal and yeah usually they end up consolidating consolidating and consolidating into two, three, this oligopoly or duopoly with brutal margins. And that's kind of the investment thesis. Because how on earth can you can compete when you don't have the scale? So you can't run the business profitably at all unless you have the scale they do. Because the margins are, we're talking about like single low digit gross margins like it is terrible like it's the worst probably in that you can think of

and that's exactly why the business works um and so yeah some businesses are optimized for for low margins like costco for example yeah which almost becomes their moat right it's it becomes the moat yeah and you don't compete with it and a walmart too right like walmart you know you know just gushes you know money like they make money hand over fist but they don't have the best margins um and that was also kind of my bullish case for amazon they're not necessarily the best margins for the retail space. But, you know, the fact that they have such a massive operation, you can probably increase slightly those margins over time and just a sheer volume, in my opinion, will end up, you know, giving them some good

profits for that retail business solely just speaking about retail. Yeah. that's you know that's the most classic mode of all time is the the scale advantage and and capex and margins become the barriers to entry yeah and expertise right they're good at you know they know how to do it let's talk about rsp season today's february 9th so you got some time but uh you know it's always a good time to be thinking about it yeah it's always a good time to be thinking about it yeah it's always a good time i mean we probably should talk a little more often about like rsps ntfs throughout the year so we are just used to we used to talk about them so much and it's like how much more can we really add yeah exactly and one thing i want to do in the upcoming episode just kind of

touch back on resps because people I've had quite a few questions recently and it's been probably over a year and a half I think since I've done that and I can give you and you're a dad now so it's a yeah I can't mind exactly so I can give you my experience with opening an account for my daughter now first the deadline is March 1st so keep that in mind for those not familiar I know a lot of people know how RSPs work, but essentially the deadline means that you can still contribute until then and apply it to your 2022 tax year, which will help you reduce your taxable income. What's important to note here is that you do not have to apply it to 2022. So you can make a contribution right now and just

want to apply it for 2023 next year when you actually file your taxes. So keep that in mind. A lot of people like to apply it. And I think a lot of financial institutions are actually, you know, they try to, they definitely use it as a marketing tool. I think that's safe to say pretty heavily because. Anytime you can provide urgency via a deadline is always good for business. Yeah. Which, you know, it kind of comes me a little rant here, but they really, you know, financial institutions as a whole, they really don't promote TFSAs all that much.

I'm assuming that's because they get better return on investment on their marketing dollars if they promote an RSPs, like you said, with a deadline. So there's that sense of urgency to people to do it right now because, oh my God, I only have two weeks left to do it. But it'd be nice if we saw them doing a bit more promotion. You know, I'm all fine, you know, spend on marketing, get more business. But you know, maybe as you do it, educate people on what they can actually do in their TFSA and not just hold it into cash. So that's a little bit of a rant from mine, but something just to keep in mind, I know we get a lot, we get bombarded by it. So we talk about the TFSAs quite a bit and what you can have in it. And people who listen to the podcast will know that you can have more than cash.

And I'll go over some stats the next Monday episode that we have. So next week and comparing what people hold in their RSPs versus TFSA. Because I found an interesting study, which is very funny in terms of what people think they can hold in one account and the other and vice versa it's almost the the opposite yeah yeah exactly every time we see one of those reports it reminds me of how much work we have to do because the the education is just a bit of a gap um and uh yeah we don't have to go into the whole the whole rant about how i want to them to rename it the tfia but that's a that's a whole that's a whole another discussion that thing should be called the tax-free investment account because that's how

it should be optimized you've been consistent with that. I'll give you that. Yeah. Years now. Like 10 years now, I've been saying that. I guess I need to be more loud. Not the right people are listening to the podcast. I need to get in their face. I'll set up the white picket fence, the picket line and the white picket fence. That was not the right. Yeah, I was going to say. Yeah.

What do people say when they're protesting? It's the picket. Yeah. Picket line or yeah. The picket line. Yeah. The white picket fence. Oh, my God.

Picket line. It's usually when, you know, people go on strike. Right. You don't want to cross a picket line. Yeah. That's right. That's when you're protesting i'm protesting the tfsa uh you heard it here first all right uh let's talk about the

nancy pelosi etf listener question from chris says what's your hot take on the fact that these even exist uh and some other tidbits of information he shared. I appreciate it, Chris. You rock. I guess this all started because people were like, hey, look at these politicians who have insider knowledge, are beating the market. How should they be able to trade stocks? And so that's, I agree, a little bit controversial. But let's talk a little bit about the reality of what's happening here. You can argue till the cows come home about if it should be allowed or if it's ethical for them to trade individual securities. I have mixed feelings and thoughts. I think they maybe should just be able to hold an ETF and call it a day because you're right, they're public servants and have insider knowledge. But first, the reality here, Journal of Public Economics published in March of 2022, do senators and house members beat the stock market evidence from public filings on the Stock Act. And it basically just came out and said, some outperformed, most, most underperformed.

And it was pretty random year to year against the S&P 500, which is exactly what you would find statistically if you compared a bunch of mutual fund managers as well and to think that they are legendary stock pickers is pretty ridiculous based on the the actual evidence that a lot of them are underperforming well just on the holdings yeah yeah just on the holdings and i think it's giving them too much credit that they're just like legendary stock pickers when the data shows that really not many of them are. And the ones who beat the market recently haven't done it with any sort of consistency. And that's normal if you hold a basket of stocks, right, to underperform and outperform the benchmark randomly. So the Submersive Unusual Whales Democratic ETF, ticker Nance, and there's also one for ticker Cruz, which is the

Republican version of it. All too good. Brilliant marketing here. It says, we'll invest in equity securities purchased or sold by the Democratic members of Congress and their spouses as well. Investments Democratic members of Congress and their spouses as well. Investments by members of Congress or their spouses or and their spouses must be disclosed pursuant to the Stop Trading on Congressional Knowledge Stock Act. So I guess to come out and say, you cannot trade on congressional knowledge, which makes a lot of sense. There's a delay between when these filings come out and when the ETF can know. So that's something to consider. I believe it's 45 days, so it's not going to perfectly copy trade it. And the holdings are pretty similar to the broad-based index. Or the NASDAQ. are pretty similar to the broad-based index or the market cap weight yeah or the nasdaq i could call yeah more nasdaq so tech focused and you know i don't see the point of paying 75 basis

points to own this etf that's my that's my hot take while i do think it's fun and it serves as some really worthwhile political satire um i'm here for that but uh you have any hot takes on this yeah my hot take is like screw this etf just you know invest something in the vegan etf remember that one yeah they but they have the same holdings pretty much and i think the vegan one they charge the same fee too it was it was it 75 basis points i don't remember anyways it was ridiculous like that was mainly the nasa yeah i was just yeah yeah this is the top 10 holdings of uh the ticker nance for nancy pelosi uh well she's the one that kind of got the whole controversy started it's's like, wow,

Nancy Pelosi doubled the index last year. Here we go. Microsoft, Amazon, Alphabet, Apple, Salesforce, Nvidia, Disney, CrowdStrike. And by the way, Philip Morris and UPS. So UPS is the top 10 holding, and it's 0.86%, so it's not big. That means that there are a ton of other companies here, and at that point, just own the NASDAQ or just own the S&P 500, not pay the 75 basis points. But I think it's brilliant marketing. This product is obviously very smart. These people are probably making tons of money from this. It makes for good political satire, in my opinion.

So I'm here for it. I'm going to say, look up Cruise. I mean, I'll hand it to the Republican ETF. It's much better. Is it all oil? I mean, there is definitely a lot of oil in there, but not just Microsoftrosoft is second but it's definitely better diversified all hand to give them that like way less heavy at the top

and microsoft is second like the top holding is uh midstream agilent midstream so it's just a pipeline company and that one is 3.48 so that's the top holding so at least this one is actually different than than some of the indices in the market yeah exactly um funny yeah it is quite a bit different yeah you've got uh you know microsoft you're not looking at the right one marry it's the top holding or no that's not right no it's k-r-u-z okay i was looking at c-r-u-z which is a travel one no okay yeah so this one yeah same thing submersive unusual whales etf um for republicans this one it's just uh interesting just the the difference uh oh yeah magellan microsoft energy a lot of energy for sure yeah dao this one looks more like the the dao industrial yeah yeah exactly so on the dao yeah exactly uh too good very funny i uh he's i mean you can never come up with enough

ideas for these etfs people are trying to get real creative and get some fun flows. And you know what? I'm here for it. I'm okay with it. That does it for today's show. Thank you so much for listening. We are here Mondays and Thursdays as per usual. Rain or shine, power on or off.

We had quite the challenge recording today's uh dude they're so the monkeys here they literally play on the power lines and they just like hit something and you know there's no power for like 20 minutes they're so loud they're so have you ever heard a howler monkey before no no i have not no they are small monkeys and they sound like 500 pound gorillas like they're very loud they're one of the loudest mammals on earth i think the fun fact oh yeah the canadians science investor podcast it's all right we we just you know we just have squirrels on our power lines here that's it just a couple rat with tails or yeah pretty much right with uh fluffy tails that's right uh but no seriously we appreciate you coming to listen

to the pod if you have not been to stratosphere.io most of the data that we've pulled from here we look up stocks we're doing our own research it's on stratosphere.io. You can get a 15% discount to a mid-tier or professional tier with code TCI. So use code TCI from the pod and you'll get 15% off. We will see you in a few days. Take care. Bye-bye. The Canadian Investor Podcast should not be taken as investment or financial advice. or podcast should not be taken as investment or financial advice. Braden 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.