The Canadian Investor - What’s Happening with Indigo and Competitive Advantages

Episode Date: September 18, 2023

In this episode of the Canadian Investor Podcast, we start by talking about different competitive advantages, a look back at how Indigo Chapters has performed in the past two years and Simon discusses a potential change in his investment portfolio. Symbols of stocks discussed: IDG.TO 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.See omnystudio.com/listener for privacy information.

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I'm going to talk about some competitive advantages. We're going to talk about to index or not to index, to be or not to be. And then I'm going to talk about being contrarian. And you will talk about Indigo. Has that been a bit of a messy couple couple months for indigo yeah yeah i mean the uh the stock is down like 70 since remember we had done an episode on reopening i talked about them like oh that's like you know they should benefit from that um i was slightly wrong because they have not performed hasn't all the executives left as well? Yeah, I mean, you'll get to that.

Yeah, anyways. Yeah. If we get to it, I mean, we have a lot of content before, so maybe it's a tease for next week. We'll see. Yeah. Yeah. I give him a good tease. All right. Let's talk about competitive advantages. So I saw something from this book called Pitch the Perfect Investment. I have not read the book, but at Market Plunger on Twitter, I shared some pretty epic diagrams from the book. Nice mental frameworks, flows around decision-making around investments and how to really pitch a good investment. And so maybe we should read that because we do a lot of pitching of our ideas here on the podcast. All right. So it talks about sources of competitive advantages and really around like there's certain things that can achieve higher prices or have lower cost structures or be more efficient at using capital. And so what those are is you can achieve higher prices and a consumer-facing advantage if you have

better search costs, higher switching costs, and habit. So those create for really sticky consumer-facing advantages, like when it's really annoying to switch providers, or really high cost to search for a new provider, or if you just straight up have a lot of habit. And so when it says consumer facing advantage here, this can also be B2B, customer facing, doesn't have to be consumer. And switching costs and habit, especially in software, we fight this all day for my business. It's like, yes, I know Bloomberg looks like it was made in the 80s because it was, but I'm used to using it. And it's like, okay, I get it, but there's a better way and a more cost-effective way. If you have lower costs in terms of you're able to have lower costs of

production, you have to have one of three things, proprietary technology, lower cost of inputs, or better distribution. I think of all of these Walmarts, the Costcos that have just extreme production advantage, extreme scale that are able to produce such low costs for their customers. This is not only great for their business, but it's great for customers as well. So it attracts more customers. And then more efficient use of capital. There are three things here, experience curve, of capital. There are three things here, experience curve, economies of scale, and network effects. I'll use Constellation as a perfect example here. They have tons of competitors now about people trying to buy vertical market software companies, but they're ramping up on an experience curve and

a network of all the companies that do it and economies of scale. They actually have so many tentacles out there in the world that are trying to buy companies and have scale in terms of being able to execute over 100 transactions a year. So those are the types of things that can be more efficient use of capital. Think of like all the really high performing conglomerates like Berkshire fit this criteria extremely well. So I thought that that was pretty interesting. And then there's one last year, which is just another one that's all alone on an island, which is advantage due to government policy.

So think of railroads as a perfect example, right? Like getting approved to build another railroad. If it happens in our lifetime, I would, I'd be aggressively betting the under that that does happen. And there's a lot of government policy that protects some of these businesses. And that can be a really, really good competitive advantage. So that's it. Yeah. Utilities, right? We talked about that time and time again. There's some pros and cons about those government advantages or policies or legislation but um at the end of the day they

can make some pretty good and sticky businesses because of it yeah and you have to kind of decipher between like what's a really sticky government policy advantage versus like a temporary one but there's nothing there's an old saying there's nothing more permanent than a temporary government policy yeah yeah oh boy yeah we'd have to get into that but you know you all know what we mean. And so that's sources of competitive advantages in terms of achieving higher prices, price and power, having lower costs in your production, efficient capital, or advantage during to government policy. I like these frameworks because we see them all the time, we understand them, but it's just one of those things where it's visual and it reinforces the way you can

kind of think about businesses and what makes them tick and what makes them durable over a really long time. Yeah. And it's usually, I think another way to just see this is what gives almost what kind of, it's almost a description of moats for different kinds of businesses, right? I think that's a good framework. Competitive advantage, mo. Yeah, it's just the same thing, really. Yeah, yeah, exactly. So now the next segment here, I called it to index or not to index. And this is really me kind of debating what I'm going to do with my own portfolio. I know a lot of people, we get a lot of questions about people, you know, wanting to do indexing, they're not sure which ETF to kind of go into. Or you have people that, you know, a lot of people, you know, wanting to do indexing, they're not sure which ETF to kind of go into. Or you have people that, you know, a lot of people, I think, end up being one or the other, but I've been a

pretty strong proponent of it does not have to be one or the other. You can have index funds as the foundation of your portfolio. And then you can have some individual companies to complement that. And that's the approach I've had for quite some time now. But I do have some names where I'm debating liquidating to be able to reinvest into index funds. So if you've been if you're a joint TCI subscriber, you saw this in my last update. Essentially, you know, I have four names that most people will be familiar with. So Apple, Amazon, Alphabet, or, you know, I may

refer to it to Google interchangeably, and Microsoft. So I have these four names outright. And if you've been listening to us for a bit or just kind of financial news in general, I mean, there is what how many names would you say about like what about let's just say the top 10 that are really pushing the S&P 500? They're calling them. Yeah, they're calling them now the Magnificent Seven, which is, you know, what is that? Apple, Microsoft, Google, Amazon, Microsoft, Google, Amazon. Nvidia. Tesla. Nvidia is up there.

Nvidia. Yeah. We're missing one. Anyways, yeah. I'll look on the index here and let you know shortly. Yeah, so all that to say that. Probably meta. Oh, yeah, that's right, meta.

That's the easy one. I completely forgot about Zuck. Oh, Zuckerberg. Oh, the bird. Yeah, so essentially what I'm thinking about is I'm looking at just selling these names and instead using the proceed to buy index funds, most of the proceeds to buy index funds. So people might be wondering, like, why are you doing this? Overall, they've performed really well for me. I mean, especially Apple. I've had it for like five years.

Was in a crazy big position to begin with, but it's done quite well over time. So if people look at the return since then, you'll see what I mean. Well, the first reason is I want to cut down the number of individual stock holdings I have from really a time commitment perspective. Because look, I know you can relate to that as well, but I'm busy. So, you know, between putting more time into the podcast, my part time job, my regular job that I'm doing as well, my wife returning to work, our daughter going to daycare. And I also want some time to just stay active, being able to work on my mobility, go mounted biking, walking outside, just being active in general. Life. Life, exactly. There's not much time to stay on top of individual

stock holdings. There is, but I think honestly, the sweet spot for me is probably around 10, and then the rest is index funds. So I've kind of been thinking about this for quite some time, and I'm just, you know, and I think this is an important lesson for a lot of people is I think people get really encouraged and into stock investing and then they get like 20, 25, 30 stocks. But I think, you know, it's good to take a step back and just being honest with yourself and just tell yourself, OK, do I actually have time to stay on top of all these holdings? And answer honestly. And if you don't, then something to consider is maybe doing like I'm

doing a bit of a hybrid strategy. Yeah, I totally agree. And I know like, when we do our monthly portfolio updates, my list is a lot shorter than yours. I got to zoom out to screenshot yours. And you're right. I mean, it's not an egregious amount of holdings you have. What do you have? Like 30 roughly? Yeah. But a lot of these are index funds or like, you know, let's call it 25, right? Oh, in terms of individual holdings. I mean, if you include the Blerk fills altogether, it really depends, right? How you look at it. But I would say I'm probably around 15 to 20 right now. Okay. So let's call it 20. You want to go down to 10. And no, I think that that's an important

thing to recognize, right? It's like, you really want to know your companies really, really well. And in the past, you've been in a position to really, really know them and dedicate the time. But life changes and you no longer have the capacity or willingness. And so that's okay. Yeah, exactly. And look, I'm just, you know, I'm being honest with myself here and being realistic because, you know, there's tons of research required for the podcast, but clearly we're not always doing companies and we want to also offer some variety to listeners, right? So if we just talk about the stuff we own all the time, it's going to get a little stale. So that's, you know, it's true. Like it's, you know, it's important.

So yes, the podcast helps me keep stay on top of some of them, but not all of them. 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, Bloss in the App Store, and I'll see you there. So the second point here, there are tons of index ETFs that have low fees and substantial exposure to the names I'm thinking of selling. You don't have to look very far. Obviously, the S&P 500 ETF, you know, an S&P 500 ETF will have right now, you obviously could be a few basis points off, but right now,

Apple is 7%. Microsoft is 6.7%. Google 4% or Alphabet. Amazon 3.3%. So all these names are actually quite heavily weighted. So even though I would sell- That's not in your portfolio. That's in the S&P 500, right? That's in the S&P 500 500 and if you take something like the u.s total market like i taught something i do own as well i mean the percentage are quite similar they're a little lower but i think apple's at six percent nonetheless so you just kind of spread it out over more names it's total u.s market obviously um so it would still allow me to keep a pretty good exposure to these names, even if I sell them just by reinvesting into an S&P 500 or I thought, like I mentioned,

or even some global index ETFs will have some probably Apple around like four or 5%. So there's definitely a lot of options right there because it's such a large company and so are Microsoft, Google, and Amazon. And it also allows me to diversify away from these names a little bit and use some of the proceeds to add to money market funds, US treasury bills that I'm thinking about, ticker BIL, probably around 10 to 15%. So some people may say, okay, so you're like, why are you putting some of the money in US Treasury bills if you go ahead with this? I've talked about it before, I do like to hedge my portfolio, just to be resilient in different kind of environments. And right now, I've talked about this, you know, probably a few times in the past few months is is I think the markets

it's pretty safe to say they're richly valued currently. And central banks are steadfast on their intent to bring inflation back down to 2%, which means that rates will probably continue to be restrictive. Restrictive just means they'll stay elevated, whether they stay at the level or they increase, but they stay pretty high where it kind of restricts investments and consumer spending which would obviously potentially slow down the economy you add that to the fact that we've seen consumer spending going down or at least shifting from essentials to not sorry non-essentials to essentials and we've talked about that sorry i had to think about that for a second

um we've talked about it with canadian tire walmart target and even i don't know if you saw recently brp they also are seeing a little bit of a shift they they kind of adjusted their guidance downwards a tiny bit not crazy amounts but it just goes to show that it is shifting and we're starting to see you know things kind of slow down a little bit and same thing for job numbers that are starting to slow down and the gap between job openings and people looking for a job is narrowing and the last thing we haven't talked about this in a very long time but the schiller p ratio also known as CAPE ratio, is quite high at 30. The ratio looks at essentially, it's just a ratio that looks at inflation adjusted average of the P ratio over the last 10 years. So

it gives you kind of a good insight on, you know, where is it right now compared to the past. And it is pretty high. It's not at its highest, but it is definitely high. And don't you know, I hope people don't think, oh, I'm like, you know, I'm bearish on equities. I'm selling everything. Like even if I put 10 to 15 percent of those proceeds, I'll still have about like 75 percent of my portfolio in equities. The rest is guys between, you know, kind of money market funds and Bitcoin. So I've been pretty open about that. But just so people understand, I'm not like liquidating everything. I'm just reallocating for the most. Most of it will be going to an index fund. If I go ahead with this, I'm still thinking about it. But a little bit of dry powder that will be yielding me five point five percent or very close to it. So it's not like it's sitting not earning anything. It's actually earning something and I can use it if I do find some discounts. And there's a bit of a correction coming up. I don't know if it will. And worst

case, I mean, I'm still getting five and a half percent on that money while it's sitting there. Using VFV, the very popular Vanguard S&P 500 index ETF that trades on the TSX, has the top 10 investments as of April 30th. Apple, Microsoft, Amazon, Alphabet, Nvidia, Berkshire, Meta, ExxonMobil, UnitedHealth, Tesla. The total number of investments is 505, but those top 10 make up 29.0%. So just a little under a third is in those top 10 names that we own and love typically and have done fantastic. And it's hard to argue that they won't do great in the future. Time will tell. But I've always had a decision matrix here, you know, in my life for doing anything, whether it's in business, investing, or personally is I have two things that I can do. Are they all or nothing? Okay. Is it, do I have to pick A and B, or can I do the best of A and the best of B and do them both?

I think this just applies for everything. Here, you're asking yourself, should I index? Should I own individual stocks? And you're saying, I can do both. I'm just changing how many individual companies I have the willingness and conviction to own when I can buy the beautiful concept of a low cost index ETF and get all the upside without all the time commitment. And so you've arrived at an amazing hybrid approach, right? Yeah, exactly. like i'm definitely leaning towards selling them and buying the index um so i haven't decided whether it'd be snp 500 or itod i think i would probably lean towards itod because i do like having you know the total us

market and these names are so very heavily weighted uh definitely would be a US listed one because they're all in USD. So I want to keep, you know, I think people know at this point that, you know, I'm not a big fan of the Canadian dollar, not because I don't like Canada, just because I think there's going to be some real pressures on the Canadian dollar and I get my income in Canadian dollar, do all my spending. And I just think it's a prudent thing to have more exposure to the US dollar. I know a lot of people push back on that. But the reality is, is over time, the US dollar tends to outperform the Canadian dollar. And as a reserve currency, I don't see that changing anytime soon. So I definitely, you know, I have plenty of exposure

to the Canadian dollar. So if I can expose myself a little more to the u.s dollar more than happy to do my investments yeah being 100 exposed to a currency that's not the usd has time and time again been a losing proposition so uh no i think that that's smart, right? People talk about diversification, but you got to diversify the currency. You're paid in CAD. Your house is in CAD. Your job is in CAD. You live in pay and breathe CAD. And you're in a lot of your portfolio is, well, not all of it. Some of it is in CAD. You got to have some US exposure, man. You just got to have some U.S. exposure, man. You just got to have U.S. exposure. So for those who are listening, on the edge, only buy Canadian stocks. Don't do that. I mean, it's their money, right?

None of this is advice, but just be smart. Frig, man. It's just, you know, being all in in anything, you know, it can work out or it can blow up in your face. And I've always, you know, my I think it's fair to say our investing philosophies are, you know, I think they've evolved for me over time. They you know, there's still some principle that haven't changed, but there's things that have changed. One thing that for me, it's really important is just being able to have just hedging a little bit so I'm resilient in a variety of outcomes. Because if you're all in on CAD and you think the Canadian economy will be resilient and do great and outperform, I do hope you're right.

Obviously, I want what's best for Canada. Yeah, of course. But I mean, if it doesn't pan out, you're going to be in trouble. So that's, yeah, I think it's really important for people. There's different ways of diversifying. I think you put it well,

the currency is really important as well. Absolutely. All right, let's talk about my segment. It's called Contrarian for Contrarian's Sake. You said something interesting on our last podcast. You challenged an idea I had, which by the way, I always appreciate. I always want all my ideas to be challenged or my views to be opposed in the world of investing. Nowhere else. Agree with me everywhere else. In investing, I want my bias to always be challenged. And I think that you run into poor investment returns if you have overconfidence in any single idea, just in general. Well, I'll say one thing.

If we do play golf together, I will listen to every single thing you say and not challenge you. Because I am terrible at golf. I have never understood i like i can hit a baseball quite well but that swing does not translate to golf i'm like i am the king of slicing that's what it is yeah don't worry we all struggle i am not accredited to teach anyone in golf right now in fact i'm i'd like to go see a pro and have some stuff fixed up. Anyways, the, the world of investment, you need to constantly challenge your ideas, right? Can we, we can agree on that. Oh yeah. And you said something along the lines of, you can't just be a contrarian for contrarian sake. I think I was talking about the seven

superpowers of investors or something. And it was like being contrarian. Oh I think I was talking about the seven superpowers of investors or something, and it was like being contrarian. Oh, yeah. Yeah, I remember. And I'm paraphrasing what you said, but you said, yes, yes, but don't be contrarian for contrarian sake. And I totally agree. It's always good to have your own opinion, do your own research, your own diligence, build your own conviction. But being contrarian and independent thinker is a very welcome trait. However, being contrarian just to be edgy or different can sometimes be unwarranted, especially when there's a market that is relatively efficient, especially in the long term. And so it was great timing because a few hours after we spoke, I found this awesome passage

on Twitter slash X. And I'm going to read the whole thing because I think it's worth it. And it brings up some good conversation. It's not too long. Here's the quote from it's not too long. Here's the quote from Citrini. I think it's just an anonymous investment account. If we are being perfectly frank, it's a lonely position to take to defend the idea that a long, so a position you own, will continue to outperform the market once it has already done so in a significant manner for an extended period of time. It's much more sexy and fun to be contrarian and controversial. And I love that stuff in macro and especially in individual equities. Shorting master in 2021 produced some great debates and insight. I get always, I missed TR. Is that the, is that the micro strategy? That's the seller always, I missed TR. Is that the- That's MicroStrategy.

That's MicroStrategy. That's the seller one, the Bitcoin one. It produced some great debates and insights and generally was an exciting play. But the thing you begin to recognize after long enough inequities is that over the past two decades, 40% of shareholder returns have been generated by 1% of companies. The simple fact is companies that do well continue to do well. It's just like a person. We aren't going to find out tomorrow that Soros, Druck, or Buffett suddenly have lost the essence of what makes them good at what they do. I forget where I first heard it, but someone once said to me, being able to pass on an investment and then get in after it's gone up a hundred percent is a superpower. What do you think the difference is between the

guy that bought Apple at six at split adjusted in 2020, I started in 2010 and the one who got in at 12 and 2011, the former is obviously going to have better returns, but the latter is probably going to have better overall performance because the latter is probably going to have better overall performance because they were humble enough to recognize the obvious dominance and genuine superior aspects of the company, despite what I am sure was overwhelming feedback that they were simply being a mindless follower. We never quite know exactly what the market is thinking in aggregate. So successful contrarianism is often less about going counter trend to price and more about going counter trend to the loudest voices you tell that tell you is common sense. That's all I have to say about it. It's something that's

benefited the things I've done with the long-term mindset. This is great, by the way. Really, really excellent. A good mix of experience, wisdom, fact around, you know, 40% of shareholder returns have come from 1% of companies. The public markets experience the extreme Pareto principle or the extreme tales of outcomes, which are a few outliers drive a huge amount of the returns or the outcome. If you're talking about statistics here and it's why I don't sell winners. It's why I don't go, I don't reward a company I own with, you know, no good deed goes

unpunished by selling it and taking a profit. You know, good entrepreneurs, good companies, good people tend to stay good, tend to be good. And that doesn't mean stop monitoring the investment thesis because the business is so great and it's going to be great for 40 years. Sure. Blah, blah, blah. But as a rule, extreme tails drive so much of the outcome and it's fun to be contrarian and whatever. The people who are contrarian were shorting Amazon and tech stocks because they thought they were so overvalued in 2018. And those companies have gone on to do aspirational, tremendous things and drive the whole market.

And the bears, the contrarians were just flat out wrong. It was easy to be long those stocks and really hard to be short them. And the people that were doing the really easy thing were right. And of course, there's nuance here and here that kind of gets lost in the mix, but winners tend to keep winning because they're winners. I don't know how to say it better than that. No, I think that's a great point. I mean, you can be also contrarian and go into more like value territory or deep value, but then you really have to be strong in financial analysis, but also be able to, it requires a lot of time. Like oftentimes the,

like people that do really well, we'll go back, like depending how long the business has been there, but they'll go back like years and years, kind of look at the annual reports, quarterly reports, listen to audio, go through the financial statement, and then they'll kind of have a thesis that might be contrarian to what the market is thinking but you i mean it's almost just a full-time job to be able to do that right i mean there's i i've seen people like there's a lot of money to be made don't get me wrong in those but it's usually not companies that you'll forever and it's companies that are more kind of turnarounds you hold for

a certain period of time or until you there's a evaluation that you see is more appropriate. So there's a multiple expansion that's more reasonable and then you sell and you make a profit. But yeah, no, I totally agree. I mean, if for those of us that don't, you know, don't do this as a full time job, I, I think that's a great read. Yeah, you have to have exceptional accounting skills, financial analysis, and ability to actually confidently with conviction, assign an intrinsic value to the business. And these things take a lot of time. My personal hot take on this is it's more profitable to be contrarian or have a nuanced take about the growth rate to the upside and the downside than the valuation. That's the way I

think. And over a long time horizon, return dump decomposition comes from growth, growth, growth. Revenue growth drives like 80% of return decomposition on time periods greater than 10 years. So if you're going to have a nuanced take, both to the upside that you don't think the business is going to grow, or you think it's going to surpass expectations of growth for a long time, have a nuanced take about the business quality and the growth rate, I believe is actually a more profitable endeavor than having a nuanced take that, you know, it trades at 15 times earnings, but you really think it should trade at 22, right? One, you got to be right. The market has to agree with you. Sometimes that can take a long time. And if you're wrong, you're stuck

holding a business that you never really liked in the first place. Or even like, even shorting, right? Like if you, you know, people can just look at a couple of Netflix documentaries. I think they're out there where I think one of them is Dirty Money. I remember, remember the Valiant one, the pharmaceutical company. Just look at that episode and listen to the people that shorted the company. How much work was required. I mean, they were right, and I'm sure they made a killing. But the amount of work, I mean, you're talking about like probably months and months of digging into these like financial

statements, like reading every single footnote. And obviously, that's another way of being a contrarian. I like if a stock is ripping and you think it's a fraud and, you know, obviously the market disagrees with you because the stock is ripping. So, you know, there's different ways, but I agree with you. I think on the upside is probably an easier way to do it. And yeah, not much more to have there. And everyone wants to, you know, be the Michael Burry of the big short. But do you really want to sit in your office all day and dig through footnotes? Like, you know, who wants to do that? I know I don't.

And no disrespect to people that do, but it's just a completely different game. We're not Hindenburg Research. The chances are the people listening to this podcast are not Hindenburg research and the chances are the people listening this podcast are not hindenburg research right and so and you may and you may end up like spending like you know hours and hours just to find out that it's probably not a great stock to short for example so you have to keep that in mind too doesn't mean that you know you do all the work that'll necessarily pan out you might just figure like okay maybe there's shady stuff, but it's not worth shorting. 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 questtrade.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. Let's look at Indigo. I've seen in the news recently, not a stock that we follow particularly closely, but at one point we thought the valuation was just extremely attractive. That was wrong. That was wrong. That was wrong. That was wrong. And I see I've been seeing in the news that the management team has been a revolving door. You know, don't let the door hit you on the way out. Yeah. And I think, you know, I like that you said that was wrong, because obviously we're talking about businesses that would for extra context.

I don't exactly remember when we talked about it, but I think it was in 2021. I talked about it a bit earlier this year because of the hack that they had. I think their website was down like for a full month. But it was in 2021. We were talking about businesses that would be able to benefit from reopening. I think it was in the spring, if I remember correctly. I think it was in the spring, if I remember correctly. And for me, the way I looked at Indigo is like, OK, well, it was clearly impacted by shutdowns, but it had an online presence.

So they were able to keep kind of revenues going to some level, but it had dropped. And I don't know about you, but I enjoy going to Indigo. It's pretty fun. You kind of go through. There's all the ones in Ottawa. I don't know if they're the same in Toronto, but they all have like a Starbucks in them. So you kind of go, you grab a Starbucks and then you kind of go through, I'll look at different, you know, usually investing related, investing related books or macro books or stuff like that on the economy. And I'll kind of look,

read through a couple pages. I mean, I could spend a couple hours there. And to me, it was kind of look, read through a couple pages. I mean, I could spend a couple hours there. And to me, it was kind of logical. And I don't want to cheat on my friend Home Depot, but coffee and fresh books. It's pretty cool. Incredible smells in there, right? You know, like that's got to be the second best smelling retail concept. Yeah, I know. Exactly.

So that's, I mean, to me, that's kind of the logic behind it, but it was not a deep dive. But clearly, you know, I think they benefited from the reopening. I don't think that part was wrong, but the business has definitely not been all that great. I think for the most part, it's been pretty flat for the past couple of years. the past couple years. So, you know, since June of 2021, Indigo total returns is down a whopping 69%. However, I don't think they were paying a dividend. So total returns doesn't really mean much here. But that's compared to the XIU, which is the TSX 60 as return total returns of 7.5%. And the S&P 500 index has returned 9.5% total return. So that's since June of 2021. So clearly, if you invested in Indigo at that point, it's massively underperformed the market. And in terms of result, the revenues have essentially been flat for the last couple of years

free cash flow per shares per share increase from the lows of 2020-21 but have since stalled earnings per share have trended down after peaking in 2022 and like i mentioned they had a ransomware attack earlier this year which impacted their online sales and lasted over a month. I know for a while they actually got the web, like a temporary website, but you couldn't even order online. You could only browse and then be able to pick it up in person. So that was clearly an issue. So that impacted. And I think there was a lot of criticism on how management actually handle that. So last week, Peter Ruiz resigned as CEO, but he will remain as consultant for two months while they bring on a new CEO. A new CEO has not been named yet, so we'll have to keep an eye on that.

I'm sure, you know, maybe in one of our news and earnings releases, we'll have some news that a new CEO has been named by the board. Now, Indigo, they like there's other metrics that show that they haven't performed all that well here. So they're like I said, their earnings per share has been low, their free cash per share has been pretty low as well. And what's also pretty concerning, and I think this is where there is the most improvement to be done is those gross margins and those operating margins are not doing well I mean they're zigzagging but overall they're trending kind of down especially if you zoom out for about like eight nine years they're not doing all that well especially in the last couple years so I think you know it'll be interested to keep an eye on this one especially when a new CEO is named because to me this is

you know it may be a turnaround play but the new CEO I think they'll have to put a lot of attention on their operations and how to make the company more efficient and improve those margins because if they don't i don't really see the viability of indigo as is they're gonna have to trim the fat somewhere whether it's reducing store count whether it's focusing a bit more online like i don't know but if it's a company you own or you're interested in for sure i would definitely my if i was in that position of looking at this one or if i owned it i would definitely wait until the new ceo is named and listen closely to what he or she is saying about the company going forward and what their plan is because that will definitely in my view that will determine what kind of returns you'll have

for indigo going forward is that plan. So we were talking about contrarian plays that could potentially be one, but the plan will be really important. Yeah, this is full turnaround. A terrible kind of macro environment of disruption in books, right? Like, look no further than the company that started with books in their, you know, crusade of disruption of commerce, which is Amazon. I'm going to share my little screen here for the joint DCI subscribers. I have earnings per share mapped out here quarterly on, on stratosphere. And by the way, Simon, you can use these little data labels too,

by the way, it's really nice. Oh yeah. the business is so cyclical in terms of seasonality i had no idea that they basically just live for christmas like well that's why i the business is super unprofitable except for q4 yeah and that's why i had to pick the data yearly. Cause as soon as I use quarterly, I'm like, ah, this is so hard to make sense of because, uh, exactly the cyclicality of the business. And it's definitely targeted towards Christmas. And I mean,

that makes sense, right? They don't just have books. They had other, their stuff, but a lot of this stuff would make sense to, you know, buy as a gift for someone.

I like that. You can use the trailing feature here simon to kind of round that stuff up so it uses quarterly periods but it adds the previous three quarters on top of it so you get rounds out for that nice seasonality the business has basically you know been in decline for yeah a couple years now it's not profitable on an earnings per share perspective. The growth is basically in slight decline. They make tons of money in Q4 and basically bleed cash for the remaining three quarters. It feels like there's something there, though.

If they right-size it and they reduce costs, potentially maybe closing some stores like i like the experience like i you know we've talked about that like i think they do have something where people want to go to their stores but i think they just need to be able to make it more efficient i think that's the most important maybe they kind of look at the kind of merchandise they're they're having um you know maybe i don't know if they have it but you know why not sell sell some ads or subscription on a long enough time horizon right the thing is is that they're they're inconsistently that experience you're talking about because not all of them are like that some of them like the big stores the flagship stores um the one near my house in the burbs where i grew up it used to be a chapters but i think

they're indigo chapters right yeah they rebranded that one has that experience that you're talking about it's got the nice starbucks a lot of these like kind of malls have them and it's like right at the front it's great but then a lot of them as well, the one I used to work near that was basically attached to the hospital was not like that. And so it's almost like they have to just really double down on that concept. They need to really pick one of the strategies.

And I also, I've used their e-commerce for ordering books because I'm going to get the book with no shipping in the same amount of time. I'd rather buy it from Indigo than, you know, the $1.7 trillion company, Amazon. That's just my consumer preference. Yeah. No, I think you're right. I mean, I think Best Buy is a great example of really changing their stores. People like younger listener might not remember as much, but they bought Future Shop. They closed a bunch of stores down. They renovated like pretty much all the Best Buy where it's really an interactive. You can try stuff out. It's more welcoming to go there. you can try stuff out it's more welcoming to go there and you know i think i'm like you i think you know i'm not gonna be the future ceo i'm not applying for the job or anything like that but

i think that's probably that's right i think they need to double down on the experience and trim the fat kind of save money on those stores that are not performing and i haven't dug into it but i have a feeling the ones that are not performing as well are't dug into it but i have a feeling the ones that are not performing as well are the ones that don't offer that same in-store experience dude future shop you just took me down nostalgia lane oh yeah yeah future shop was sick says maybe 10 years ago that best buy bought them and then they started closing down a bunch of them and then rebranding them to best buy i got future shop of google images here how nostalgic are these stores oh yeah yeah and then yeah when was it that they bought uh future shop in 1990

future shop shutters oh 2015, it was pretty close. Yeah. It was only 2015? Really? That was ages ago, wasn't it? Yeah, I mean, maybe Best Buy bought it a bit before that, but then they made the decision to close the stores. Yeah. Because we had a few in Ottawa, too.

66 Future Shop stores will close effective immediately yeah um and another 65 stores will be converted for a okay so they basically shut down one of them permanently and the rest yeah oh oh half and then they turned them into best buys yeah weird i do i in my mind that was like 15 20 years ago no it was i guess not that long ago but uh yeah down memory lane yeah yeah exactly thank you so much for listening to the pod we appreciate you we we are here every monday and thursday port reporting the news on Mondays. Or no, other way around. Yeah.

I run this podcast and I still don't know. Reporting the news on Thursdays and talking about big picture stuff on Mondays. If you have not subscribed to the Patreon, that is at join TCI.com. I think we got like almost 220-ish subscribers. That's nice. I want to get to 1 a thousand true fans one day. And we're sharing lots of metrics here. You need to open an OnlyFans account.

Remember when OnlyFans was trying to do that, like a rebrand where they would do like, they were doing no nudity, just creators. Maybe we, if we like pitch that to do that like uh rebrand where they would do like yeah they were doing no nudity just creators maybe we if we like pitch that to them as like you know this is a very clean look for you guys it's an investment podcast this could be your gateway into the rebrand maybe they'll like really hook us up with a lot of promotion we'll see it could be a risk for us yeah exactly catch our podcast on Lonely Fans. Thanks for listening, folks. We appreciate you. Take care. Bye-bye.

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.