Reviewing My Entire $700,000 Stock Portfolio

Summary

Highlights

• Joseph Carlson remains committed to his investment strategy during market downturns, resisting media pressure to switch to small-cap stocks. 🔒
• His portfolio largely consists of major market players like S&P Global, Mastercard, and Costco, which he trusts for long-term gains. 📊
• New acquisitions include Salesforce and Booking Holdings, reflecting a strategic expansion in tech and consumer sectors. 🌍
• Carlson stresses the significance of maintaining an investor temperament, avoiding emotional decisions and focusing on strategic long-term growth. 🧠
• He describes companies like Moody's and Vici Properties as having 'natural monopolies,' which provide steady, reliable returns. 🏢

Key Takeaways

• Despite market volatility, Joseph sticks to investing in market leaders and not shifting to small-cap stocks. 🚀
• His portfolio includes dominant companies like S&P Global, Mastercard, and Costco, which are termed as 'compounding machines'. 💼
• Carlson emphasizes the importance of reviewing holdings regularly and sticking to a well-thought-out investment strategy. 📈
• Some new additions to his portfolio include Salesforce and Booking Holdings, showing his willingness to adapt within his strategy. 🌟
• Joseph highlights the significance of understanding company fundamentals and future growth potential, focusing on long-term gains. 🔍

Overview

Chapters

• 00:00 - 02:30: Market Overview and Portfolio Strategy The chapter discusses the recent downturn in the stock market, marking what is predicted to be the worst week since March 2023. Specific indexes, such as the NASDAQ, S&P 500, and Dow Jones, are all experiencing significant declines. The NASDAQ alone is down by 22% in just one day, while the S&P 500 and other indices have followed suit with substantial losses. Over the past five days, the S&P 500 has decreased by 3.6% and the NASDAQ by nearly 6%. This decline follows a prolonged period of market growth driven by large-cap technology companies, including the prominent group known as the 'Magnificent 7'. The downturn indicates a shift from the previous market trend driven by these tech giants.
• 04:30 - 11:30: S&P Global The chapter discusses the concerns of investors about the sustainability of the rally driven by major technology stocks. There's a noticeable shift in media narratives, with significant publications like The Wall Street Journal, Bloomberg, and Baron advocating for investment in small-cap stocks. These sources suggest that while big tech companies might be stepping back, small-cap stocks could be gearing up for substantial growth, indicating a potential shift in investment strategies from market leaders to smaller, potentially high-growth companies.
• 11:30 - 16:00: MasterCard The chapter discusses the speaker's investment strategy, which focuses on maintaining a portfolio of market-dominant companies rather than shifting to small-cap stocks. The speaker argues against media pressure to sell these successful investments despite recent downturns and emphasizes the importance of holding onto promising stocks even during market volatility.
• 16:00 - 21:00: Costco In this chapter titled 'Costco,' the discussion centers around investment strategies during economic downturns. The narrator emphasizes the importance of resisting the mainstream media's pressure to abandon well-thought-out strategies or sell high-quality, long-term winning companies. They advocate for holding onto prized assets and sticking to strategies focusing on what are believed to be the best companies, despite market selloffs. However, they also stress the importance of periodically reviewing investment holdings, suggesting that the present market downturn is a pertinent opportunity for this review.
• 21:00 - 26:00: Texas Roadhouse The chapter titled 'Texas Roadhouse' is part of a larger discussion where the speaker shares an overview of all the companies they own. It is described as a hedge fund style assessment, where the speaker outlines the investment case and thesis for each stock they possess. The speaker emphasizes that the episode will be information-dense, providing numerous insights, and notes the considerable effort taken to prepare it. Before delving into detailed analyses, the speaker also expresses intent to provide background context on their investment philosophy or strategy.
• 26:00 - 31:00: Moody Corporation The chapter titled 'Moody Corporation' focuses on the concept of building a passive income portfolio. The speaker started this investment journey in 2017 with a small amount, and over time, by reinvesting dividends, making new contributions, and benefiting from capital appreciation, the portfolio has grown significantly. The speaker advises friends, family, and viewers to start building their own portfolios for financial growth.
• 31:00 - 37:00: Booking Holdings The chapter titled 'Booking Holdings' emphasizes a strategic investment approach during market weaknesses by acquiring high-quality assets or ETFs such as the S&P 500. It suggests that not every investor may have the skill to pick stocks, and for them, ETFs can be a sound alternative. The author believes in a strategy centered on continuous compounding by investing in the best assets, referred to as 'compounding machines.' This approach is part of a broader investing philosophy that guides the author's financial decisions.
• 37:00 - 42:00: Salesforce This chapter focuses on the key attributes sought in companies, specifically emphasizing the importance of free cash flow. It highlights the distinction between companies that are 'compounding machines' and those that are not. An investor should develop a strong temperament, making decisions based on rationality and logic rather than emotions or outside pressures. The chapter provides guidelines and examples to illustrate these points.
• 42:00 - 47:00: VICI Properties The chapter discusses an individual's approach to buying and selling stocks. It highlights a freely available presentation that explains the speaker's entire investing philosophy, akin to investing like Warren Buffett. This philosophy is outlined in an episode titled "How to Find Compounding Machines: A Full Guide," which is well-received, showcasing its popularity and approval. The current chapter aims to apply the discussed investment philosophy.
• 47:00 - 50:00: Intuit The chapter titled 'Intuit' begins by stating that the focus will be on analyzing a specific category of companies, starting with S&P Global. The speaker expresses their significant investment in S&P Global, which is their largest holding valued at $115,000 and yielding a $31,000 profit so far. They note that S&P Global has seen a 17% increase in value year-to-date, excluding dividends, outperforming both the S&P 500 and the NASDAQ. The speaker emphasizes their admiration for S&P Global, attributing it to the company's dominant position in the credit industry.
• 50:00 - 54:00: Microsoft This chapter provides an overview of the credit rating business, focusing on the role of natural monopolies in this sector. It highlights that credit ratings, such as those from S&P Global and Moody's, offer significant financial advantages. These ratings result in lower interest rates on debt because they are trusted by investors, leading to higher investment comfort and willingness to pay more. The chapter briefly mentions that S&P Global is more than just a rating provider, hinting at further exploration in subsequent content.
• 54:00 - 60:00: Canadian Pacific The chapter 'Canadian Pacific' discusses the diversified and high-margin businesses of S&P Global. It highlights their various sectors, including Market Intelligence, Ratings, Commodity Insights, Mobility, and Indices. These industries are described as having a high degree of competitiveness and profitability. The revenue streams mainly consist of subscription or recurring income, characterized by high margins, low capital expenditure, minimal advertising, and low stock-based compensation.
• 60:00 - 64:00: Apple This chapter discusses a company's alignment with secular growth trends and its leadership position in industries benefiting from these trends. The company recently acquired IHS Market, enhancing their predictable free cash flow per share. The chapter emphasizes the company's strategy to capitalize on long-term market trends and the significance of its recent acquisition.

Reviewing My Entire $700,000 Stock Portfolio Transcription

• 00:00 - 00:30 welcome back everyone the stock market's headed towards the worst week we've had since March of 2023 today alone the nasdaq's down 22% the S&P 500 is down 1.76% even the Dow Jones is dropping this has been a losing week for everyone over the past 5 days the S&P 500 has dropped 3.6% and the nasdaq's now almost down 6% in 5 days after years of the market being pushed Higher and Higher by large cap technology companies ones like the Magnificent 7 ones like big tech companies and now seems like some
• 00:30 - 01:00 investors are concerned that the rally can't continue with these stocks that instead we need to look for returns elsewhere we're now seeing a concerted effort from the media to push small cap stocks The Wall Street Journal says why now may be the time to invest in small cap stocks Bloomberg says that small caps rise as big Tech takes a back seat Baron says that small cap stocks are finally ready to run with the bulls is it finally time that we switch to small cap stocks that we give up on the market leaders the biggest and most powerful
• 01:00 - 01:30 companies in the world well in my opinion no that's not what I'm doing with my portfolio I'm not shifting strategy from Market leaders to small cap stocks I own Market dominant monopolistic companies that continue to grow through any environment I believe the pressure the media is putting on investors to sell out of these companies because they've gone through a winning streak is misguided but I understand when the Market's being shaken and it's going down a bit it becomes more difficult to hold on to companies that you are once bullish on the thesis and con conviction we have on these stocks
• 01:30 - 02:00 is most tested during downturns sirly reject the pressure from the mainstream media to abandon a wellth thought out strategy and to sell companies that have been long-term winners and compounding machines I'm not going to sell out of what I believe are the most prized Assets in the world and instead start favoring lower Quality Companies but while I continue to stick to my strategy and focus on what I believe are the best companies in the world I continue to review my Holdings from time to time and I believe with this market selloff now is as good of a time as to review my
• 02:00 - 02:30 Holdings so I put together a simple hedge fund style overview of every company I own that's right these are the bullet points the investment case the thesis of every stock I own and where they stand now and yes we're going to be reviewing every single one of them in this episode so this is going to be a very informationally packed episode with lots of takeaways and this one took a long time to prepare so I hope you enjoy it now before I jump into the thesis of each of these companies I own I want to give a little background here I've been
• 02:30 - 03:00 building up this portfolio called the passive income portfolio since 2017 it started off very small it's just a couple thousand dollar as I continue to earn money I put more and more into this portfolio the combination of reinvested dividends of new contributions through adding more money to the portfolio and through capital appreciation has grown the portfolio dramatically over time and this is what I recommend to anyone family friends and viewers start building up a portfolio start buying
• 03:00 - 03:30 high quality assets use weakness in the market to add to positions you want to own if you're not able to pick out stocks and you don't believe that's a skill set you can Master that's fine buy a high quality ETF like the S&P 500 in my case I focus on a strategy of continually compounding my returns by buying what I believe are the best assets in the world I call them compounding machines I have an entire investing philosophy that outlines everything I do with my decisions the
• 03:30 - 04:00 specific type of attributes I look for in companies I give illustrations and examples of what compounding machines are and what they aren't I have a strong focus on the free cash flow companies generate over time the more consistent and faster growing and predictably a company can generate free cash flow the better I have a strong focus on developing an investor temperament that means that you are rational logical in your decisions consistent with your plan and not making decisions based off of gambling or in PS and I have guidelines
• 04:00 - 04:30 on when I buy stocks and when I sell them this entire presentation is given away for free anyone can download it and I overview the entire presentation in the episode with this thumbnail invest like Buffett the episode title is how to find compounding machines a full guide that's where I go over my entire investing philosophy that episode now has a quar million views with 99% thumbs up so a lot of people enjoyed that one going over the investing philosophy and I believe this episode will be informational as well going over the application of that philosophy so having
• 04:30 - 05:00 said that let's go ahead and jump in and we'll look at the first category of companies first on the list we have S&P Global this is grown into my largest position it is currently a $115,000 position with $31,000 in the green S&P Global has performed really well this year year-to date it's up 17% not counting dividends which beats the S&P 500 and the NASDAQ if we look at an overview of what S&P Global is what they do it highlights why I love this company first of all they are a dominant credit
• 05:00 - 05:30 rating and Market data provider now I go further into the credit rating business when I cover Moody's but just to give a brief overview ratings are a natural monopoly that means that it's cheaper to be rated by S&P Global and moodies than to go to a competitor even if a competitor offered their services for free because when you're rated by S&P Global and Moody's your debt has a lower interest rate investors will pay more for it because they have the comfort of that rating now s Global is not just a
• 05:30 - 06:00 ratings company S&P Global has its hands in a lot of Diversified wide Moote high margin businesses they have Market intelligence that's the market data portion of the business then they have ratings then they have commodity insights mobility and indices all of these have varying degrees of their level of competitiveness but they're overall very high margin concentrated Industries nearly all the revenue is subscription or reoccurring all these businesses are high margin low capex low ad advertising low stock based comp
• 06:00 - 06:30 further everything with this company has secular trends of growth debt issuance passive investing Market data all have long-term secular trends at their backs so this company just needs to ride the wave pushing them forward they're already in the leadership position in these industries they just need to go along with the secular Trends now they're also moving past a large acquisition they recently bought a company called IHS Market that merger is allowing them to have predictable free cap cash flow per share and now that
• 06:30 - 07:00 most of the impact the short-term troubles with the merger are behind them we'll see even more predictable free cash flow per share growth in the future and then ultimately when I do analysis on different management teams and culture they have a strong culture of efficiency growth and providing strong shareholder returns it's not a flashy company this isn't one that's going to show up on anyone's radar as being a really fun or exciting company but they give strong shareholder return turns so
• 07:00 - 07:30 S&B Global continues to occupy the top spot the performance may vary over time but right now this one has beat the market next up we have MasterCard this is another Massa position $91,000 in the single stock with $8,600 of that being gained everyone's familiar with MasterCard we've all used Visa Mastercard before but most investors still don't fully understand the power of this network effect MasterCard has a royalty a royalty or a license on the growth of other businesses Warren
• 07:30 - 08:00 Buffett himself has said that that is the best type of company one that has a royalty on the growth of other businesses now in the case of MasterCard they don't just have a royalty on the growth of one particular business or one small segment they have a royalty of the growth on many companies millions of companies it's almost a royalty on global growth they have significant Network modes through customers merchants and partner Banks and it's now so large it's nearly possible to break
• 08:00 - 08:30 or impossible to usurp there are multiple billions of MasterCards actively in the world today one of the advantages of percentage-based Revenue where they take a sliver of every single charge is that it works as a significant inflation hedge so as Global economies print money as they devalue money and they cause inflation MasterCard will naturally grow in part because of that inflation so if you're concerned about inflation long term this is a natural hedge there's also a case where we still
• 08:30 - 09:00 have currently trillions of dollars in cash that will eventually shift to digital that's another big Tailwind for this company and it's very unlikely that government regulation will cause significant obstacle to their growth they're going to be regulated there's going to be price controls there's going to be certain things that cause them to slow down MasterCard is at a point where they're too developed too big to be stopped on one side of the business that investors are less familiar with they have data gathered through their massive Network and they repackage it it and
• 09:00 - 09:30 sell it as value added services so when you look at the revenue breakdown of MasterCard a significant portion is from those value added services and I really like when companies are able to do this when they're able to use one portion of business the massive Network they have to Aid another portion of business which is the value added services so they are able to grow this portion of the business in part because of their Network now in terms of the moat and durability I believe MasterCard has long-term predictability it's unlikely to disrupted many investors believe that
• 09:30 - 10:00 crypto or different payment methods will disrupt MasterCard but they've worked alongside many other competitors for a long period of time so I believe it's very unlikely for mastercard's long-term growth to be disrupted now one of the best performing companies in my portfolio over the past 5 years is in the consumer category it's normally a category that I don't invest in I don't like physical retailers in fact I don't own any single physical retailer except Costco I started buying Costco way back
• 10:00 - 10:30 in 2018 I contined to buy it during any time it would dip and I wish I had bought more of the company currently it's a $76,000 position with $41,000 in the green I tell people that I invest in the best companies in the world and I believe that Costco is a good example of that it is the preeminent physical retailer in the world and I think that's by a good margin there's no physical retailer that comes close in terms of business quality to Costco they're first and foremost the only physical retailer that's been able able to successfully
• 10:30 - 11:00 pull off a subscription-based company at their scale there's others that are trying to mimic the model but to lesser degrees of success their subscription-based business has a 93% retention rate which has increased over two decades 93% retention rate is incredible seeing it go up over time as they open up new warehouses is even more incredible to see Costco is not a seller of products now this is where Costco gets misunderstood most retailers make money by selling products they buy
• 11:00 - 11:30 inventory they mark it up and they sell it and that's their margin Costco is not a seller of products they don't consider themselves a seller of products they are a buying agent on behalf of their membership they use their large scale and their massive membership to broker better deals on behalf of their membership their goal is to have the lowest prices possible on different items while most investor presentations of different companies show you how much they're able to charge for their premium product Costco does just the opposite they
• 11:30 - 12:00 highlight deals and lower prices in their investor presentation members receive the best quality and lowest prices possible that angle of business makes it incredibly difficult for competitors to compete Costco's highquality products experienced staff low margins long-term customer trust is incredibly difficult to disrupt or compete against this mixture of business qualities in a single company is so difficult for anyone to compete with now the membership model also Al rules out
• 12:00 - 12:30 bad customers and it tilts towards High income customers in retail one of the biggest problems are bad customers there is a huge problem with theft in retail people walking out with different items the membership makes it very difficult to steal from Costco because if they catch you stealing they'll revoke your membership if your membership is revoked you have a tougher time getting in the warehouse so the membership model rules out bad customers that Costco doesn't want to have and it also improves the shopping experience for every other customer now the valuation is not cheap
• 12:30 - 13:00 that's the biggest problem with Costco right now it's trading at a 54 PE ratio but investors focus on the PE Ratio intently Year bye whether it goes up from a 40 to a 50 or back down to a 35 the PE Ratio jumps around from time to time I'll admit that it's on the high side right now and I'm not actively buying Costco I always wait for a dip to buy this company but I think one thing that should be the greater FOC focus when entering into positions with a
• 13:00 - 13:30 long-term focus is can the business predictably grow for the next 25 to 30 years when I do analysis over the different companies that I invest in Costco is one of the most predictable on my list in fact I believe it's incredibly predictable to open up 25 to 30 new warehouses every year for two decades Costco has a very deep bench management that builds Costco brands for the long term they build it with care they build it with caution they've done so with their Kirkland Signature brand
• 13:30 - 14:00 management also runs a company with an impeccable balance sheet they take on no risk through long-term debt and they have far more cash than their debt or their leases combined so while I'm not actively buying Costco I'm also not selling it I continue to hold this company because of my favorable view of the future another company that's in a weaker industry that you wouldn't expect to be a compounding machine is in the restaurant category I currently own a significant holding in Texas Roadhouse this is now a $70,000 position with $35,000 in the green What drew me to
• 14:00 - 14:30 Texas Roadhouse was not only visibly seeing how good the execution was in the restaurant as a patron myself I thought that it was expertly ran but it also started to catch my eye when I looked at the charts and the long-term history of the company very few companies have as steady of Revenue growth as Texas Roadhouse the number of restaurants opening every single quarter was also steady same store sales also grew very steady throughout time the earnings per share also grew with a great deal of predictability over different times I
• 14:30 - 15:00 was convinced that Texas Roadhouse was an underappreciated compounding machine and I decided to invest in it during a dip now when I look at the stock now it's currently at a stock price of $160 and has a market cap of 11 billion so it's gone up around double since when I first spot into it but I still believe in a bright management for this company first of all Texas Roadhouse has an expertly structured and scaled Steakhouse and this is difficult to do rest restaurants at scale rely on
• 15:00 - 15:30 processes they need to have good incentive structure now the unique management of Texas Roadhouse and the incentive structure resulted in a highly motivated local restaurant operators if they continue to operate with this level of precision the stock will do really well for a long period of time and I don't see their operations changing for the worse now they're also in an industry where they have competitors that are far higher price to them that has been a big Advantage for Texas Roadhouse they are affordable with their high quality stakes and I believe
• 15:30 - 16:00 affordable highquality Stakes will always be in demand we also see that GDP per capita has increased over the past decade and any increase in GDP per capita is likely to increase spending on experiences Texas Roadhouse falls into that category of experiences when you have extra money when you have discretionary spending and you want to go out and have a fun time restaurants become one of the primary places to do so they're also at very large scale which provides with better cost structure and lower input costs even
• 16:00 - 16:30 today I estimate the runway for growth remains long with Texas Roadhouse they're opening up new Texas Roadhouse locations every single quarter new Babas 33 new Jaggers and they all have room for growth both in the US and outside of the US Texas Roadhouse also has growing takeout which is now a $1 million per restaurant business they're making around $220,000 a week in takeout now they also have an incredibly strong balance sheet with no long-term debt debt so while this company's growing and
• 16:30 - 17:00 growing and growing they're not doing so on a capital leverage basis they have $200 million in cash with no long-term debt they are slow and deliberate in rolling out new restaurants which reduces the risk of the company so Texas Roadhouse today is not the same still it was when I was buying it but I still believe that there's ample upside for the stock even though it's up 40% year to date now next we get back to the financial Tech category and we have moody Corporation Moody is the counterpart to S&P Global but Moody's is
• 17:00 - 17:30 even more concentrated in the ratings business remember how I said that MasterCard has a royalty on the growth of other companies well Moody has the same thing just in a different way they have a royalty or they are a toll collector on global debt issuance companies use debt to grow and anytime they issue debt they're most likely going to get it rated by Moody's there's currently $73 trillion of total debt that is rated and growing Moody's S&P GL and fit combined rate more than 95% of
• 17:30 - 18:00 global debt Moody's and S&P Global both have around 40% market share so these companies are doop toll collectors in this massive market73 trillion of debt being issued that needs to be issued and paid off over and over and over again and again Moody's enjoys a natural monopoly as it's cheaper to issue debt rated by Moody's and S&P Global than free Alternatives the other side of Moody's business outside of their ratings is their analytics this is a growing subscription business from selling
• 18:00 - 18:30 proprietary data Moody's uses their investor Services business which is their debt rating portion of the company they package together the data and then they resell it to their Moody's Analytics which is their subscription business Moody's does the same thing that MasterCard is doing MasterCard uses their Network to get a lot of data and then they sell value added Services well Moody's does basically the same thing by using all the data they get through their debt rating business they package all of that together and then they sell it to companies through an analytics
• 18:30 - 19:00 subscription business that's called Moody's Analytics around half of what the analytics business uses is aided by the ratings business so in a way similar to how MasterCard Works Moody's is growing this subscription business on the side that's growing in part because of their Monopoly business now while all of this is going on they have excellent cost structure allowing the majority of cash to go directly to shareholders through BuyBacks and dividends these elements of the huge mode of this
• 19:00 - 19:30 company the global nature of the business and the cost structure have caused this one to be a long-term outperformer and even this year it's far outperforming the S&P 500 and the QQQ it has 25% returns year to date while the QQQ and S&P 500 are struggling to get half of that even though there is some overlap between Moody's and S&P Global I'm happy to have that overlap and I like that Moody's gives me a more Pure Play into the ratings business now now as we go throughout the portfolio I get
• 19:30 - 20:00 into some of the newer additions companies that I've most recently bought one of them is in the consumer category and it's booking Holdings the ownerof booking.com this is currently a $47,000 position and only $600 in the green so it's teetering between the green and the red there's a lot of questions of why you would buy a company like booking Holdings when it appears like we're going into a recession but even despite that fact that we may go into a recession someday booking remains a very
• 20:00 - 20:30 attractive investment first of all it's the largest online travel agent in the world and I love owning the top companies in their industry they're over four times the size of the closest competitor in Europe and Europe is a heavily traveled to place so Europe's a very valuable Market when it comes to the travel industry booking being the largest company there by over four times means that they're an extremely profitable company in Europe and that's where the majority of their profits come from now they also have diverse off offerings Hotel flights taxis cruises
• 20:30 - 21:00 and restaurants the company's not just a hotel company they're not just a flight company they also do Airbnb so booking Holdings wants to be your one stop for planning your vacation when customers realize they can do everything through booking they have little reason to turn anywhere else now even though this company's been around for a long time they've grown for decades I still believe that there's significant room for growth in global online air and hotel bookings there's still a lot of opportunities for them to grow across
• 21:00 - 21:30 the globe and more and more countries are growing their GDP per capita that allows booking to naturally grow there's other secular Trends pushing this company forward higher GDP per capita increases the likelihood to seek experiences over things this is the same thesis I have with Texas Roadhouse when people have more discretionary money to spend they want to seek experiences people typically don't want to buy their third car or fourth car they get the amount of transportation and goods that they need then they seek experiences so
• 21:30 - 22:00 I see a long-term trend of GDP per capita increasing and I think that will only benefit travel companies they're also highly efficient in their cost structure most of the company's completely digital the only big spend they have is with advertisement and that's very flexible this is allowed for Rapid share count reduction they direct all of their free cash flow back into buying back their shares and since they have a very high free cash flow yield a low valuation they can do this effectively the current valuation of the
• 22:00 - 22:30 company is very undemanding an 18 Ford PE a 6% free cash flow yield is one of the cheaper companies with these type of characteristics another new holding that I've added to the portfolio recently is in the tech category right now this is my only position that's currently in the red it's Salesforce when I look at the overview of Salesforce in my thesis on the company I still believe today it offers one of the best risk rewards in the market first of all Salesforce is a do CRM platform that means that they
• 22:30 - 23:00 manage your customers for your business they have over 150,000 people using the platform different companies which creates a large Network effect and ecosystem the massive customer base really benefits them with things like their app exchange they have lots of developers building apps in the Salesforce app exchange they also have exhaustive offerings of sales service marketing and commerce analytics and integration and custom applications the fact that they have such a comprehensive
• 23:00 - 23:30 Suite of software makes it very difficult for other wouldbe competitors to gain market share they have extremely high switching costs that means that once a company starts building upon salesforce's platform it becomes more and more difficult to move away the biggest Focus most recently for management is on building upon their cash flows their operating margins for example have gone from minus 8% in 2021 to plus 17% in 2024 so we've had a massive swing and operating margins
• 23:30 - 24:00 their free cash flow per share growth rate has increased by 50% in a single year so we're seeing massive increases in free cash flow per share growth they're going to keep gaining operating margins and have their free cash flow grow with their organic Revenue growth the other part of Salesforce is the debate of how AI will impact the company I have the belief that do-it-yourself AI models will eventually shift to large scaled platforms most of those companies will eventually start to use a platform that already offers AI models and AI
• 24:00 - 24:30 tools Cloud started the same way Cloud started as fragmented and eventually concentrated to the leaders now there's a couple top companies that control the big portion of cloud I believe the same Dynamic will happen in AI don't be mistaken by the stock price not responding to these earnings reports that's normal with the market Salesforce is growing their free cash flow per share they're growing their revenue they're reducing their share count they're paying a dividend if they continue on this track it's inevitable
• 24:30 - 25:00 that the stock will eventually move up now if we move into one of the companies that I haven't talked about as much recently but I've still held in my portfolio for a long time we get into the real estate category and we have vichi here my only real estate company the current position size is around $339,000 with 12,000 in the green I would describe vichi as a highly predictable group of income generating properties they are longterm multi-decade leases with contractual rent raises that means that vich has a very high predictability of being paid a certain amount of money every single
• 25:00 - 25:30 year and that amount of money should raise over time these are profit Center properties which tenants cannot leave or relocate a problem with investing in commercial real estate is there's always more office space down the street and what if that office space offers you incentive to move your company from where you currently are to their location well in the case of vichi you avoid that problem there's no Venetian down the street there's no other MGM properties that the operator can move into they are stuck in these properties
• 25:30 - 26:00 so vich can charge their rents and not worry about their tenants moving to different locations these are also triple net leases which means that majority of expenses are on the tenant if anything unexpected happens that's going to be a tenant cost not vichi V's also routinely grown their afo which is like the free cash flow per share for Reit they've grown that every single year since 2017 now in terms of the macro environment the reason that investors invest in vichi is they're seeking high yield Investments when
• 26:00 - 26:30 interest rates go up to 5% and you can get treasuries for 5 and a half or 6% that means it's very difficult to want to buy a reat that's offering you 7% with a level of risk the spread between treasury rates and vich impacts V's valuation interest rates falling should improve investor appetite for V's yield if treasuries go back to 3% and vich is yielding 7% all of a sudden this stock becomes far more attractive so I expect the stock price of $33 today
• 26:30 - 27:00 to go up as interest rates fall so vich has been kind of a quiet holding in my portfolio it hasn't really done much but I remain bullish on the company it's such a reliable predictable company that pays me on schedule every single quarter and routinely raises its dividend I like the predictability of it I like the long-term nature of it and I think it will do even better if interest rates go down now if we look at the last company in the financial category we have into it most investors no into it from their popular product Turbo Tax which is not a
• 27:00 - 27:30 fun product to begin with taxes in and of themselves are not fun but into it happens to be a really good company it is a very very good tech company it's a dominant Diversified Financial software provider concentrated market share of small business accounting and tax software they're currently in transition from moving many of their customers from desktop one-time purchase to browser software as a service subscription based this is the same type of transition that
• 27:30 - 28:00 Microsoft did that adobe did that had incredibly good results into it following their playbook doing the same thing and they're pulling it off really well they're around 80% through that transition management of Inuits also intently focused on enhancing the product Suite with AI they are adding artificial intelligence to everything they do to make the products better and better there's also what I would call significant switching costs and network effects through the knowledge Bas of into it a lot of accountants know how to
• 28:00 - 28:30 use QuickBooks in fact they use QuickBooks for years and years because there's a massive knowledge base of using QuickBooks it makes more accountants more likely to use QuickBooks in the future switching costs are because of knowledge base as well and the same type of thing exists with Turbo Tax if you do your taxes with Turbo Tax for a few years your taxes become easier to do because Turbo Tax knows your history therefore making it difficult to switch to competitor even if they're free or cheap in most
• 28:30 - 29:00 cases most people would rather save the hassle and do their taxes with the platform they know will do it quickly and easily they have a great balance sheet moderate leverage with net debt to ebaa less than one times that's a mathematical way of saying that this company is not heavily indebted they could pay off their debt within a single year and they have a long proven history of dealing with competitors overcoming free government options and outperforming the market the free tax software has been tried before by the government and it never gained traction
• 29:00 - 29:30 into its products are too well optimized and used by customers to see significant loss of market share ultimately into it is a similar company as booking or Salesforce it's a scaled software company with incredibly attractive margins and it's super profitable now if we go back to the tech category I have a couple companies that have been obvious picks throughout history Microsoft being one of them I bought into this company heavily at $220 per share now it's raced up to 400 but looking at the overview of the company I still believe Microsoft is
• 29:30 - 30:00 worthy to have in the portfolio it is an entrenched business tool leader in Fortune 500 and small businesses almost everyone's using Microsoft when every company's using your business already it makes further sales opportunities even better over 80% of revenue from Microsoft is subscription or contractual so it's highly reoccurring Revenue they have bundles Network effects switching costs knowledge base all of that works together to create a significant mode
• 30:00 - 30:30 the core business is so strong with Microsoft the ecosystem works better together creating an incentive to use Microsoft products over competitors when you use things like teams and you're already in the office ecosystem it's just a little bit easier to use other Office Products Azure is currently second place and it's going to end up either second place or possibly first place if they can beat AWS now there's a debate over whether or not they'll surpass AWS but either way they're going
• 30:30 - 31:00 to be in a close first or second place in Cloud which is a very enviable position to be in Cloud leadership will support earnings growth for a decade the cloud Market position is nearly impossible to disrupt no one's going to come out of left field and steal their Cloud leadership AI product Suite enhancements offer continued growth opportunity they're already intermingling AI into all of their products again Microsoft is a massive platform business they have so many different pieces of soft software that they offer and that they can integrate
• 31:00 - 31:30 AI into they're spending a fortune on capex right now but that should normalize over time as we go through this AI upgrade cycle it'll eventually start to unwind they'll better figure out how much they really need to invest in AI so I don't expect this explosive growth in capex to be a permanent fixture I'm not buying Microsoft right now the company's trading out a full valuation but I still think it's worth holding and I'm going to continue to have it as a key position Now we move move on to one of the smaller positions in the portfolio but it's still
• 31:30 - 32:00 relatively large which is Canadian Pacific this is a $35,000 position it's currently only $2,700 in the green which is not a lot based on how long I've owned this company it really hasn't performed so far even though it hasn't been a detriment I like to see more from the companies I own aside from the lackluster stock performance I look over this company and there's not much to complain about in terms of the company's Management in terms of their fundamentals everything looks really sound Canadian Pacific is an advantaged
• 32:00 - 32:30 class one Railway system spanning three countries the rail network spans from Mexico across the us into Canada that in and of itself is pretty unique and gives them a lot of advantages management is quickly optimizing through the merger they recently did this merger to make that Railway system that incurs a lot of one-time expenses and headaches but management is going through that the capex and growth guidance that the management has given given implies a 20% free cash flow per share growth rate
• 32:30 - 33:00 that's just the simple math and this management is really good they usually undershoot things so they're not selling investors a bill of goods that they can't live up to railway systems are stagnant they're unlikely to ever be recreated by any other system in the future so the class one Railway systems we have are not going to change much over the next 20 years now the experience management is a part of this thesis with Railways it's important who's running them in this case it's Keith Krill who has a long history of
• 33:00 - 33:30 outperforming Market expectations and competitors through optimizing railroad operational performance he is just really good at his job he gets things on track he does it well he takes care of employees he reduces the amount of accidents and risks he optimizes all the routes he does a good job all the way around so Keith Krill is an excellent leader for a really advantaged company when I look at the long-term nature of companies this one has a reli iable terminal value I don't see much
• 33:30 - 34:00 disruption in the future there's the argument that driverless trucks could disrupt Railways in the future but I don't buy that argument trains already don't need drivers they only have a couple operators per 100 plus carts and Railway systems and trains are already multiples more efficient than trucks so anything that's really heavy or toxic or difficult to transport for hundreds of miles is going to be moved by trains and I don't believe that's going to change anytime soon now finally we get to my
• 34:00 - 34:30 now smallest position which is Apple it is now a $32,000 position $3,100 in the green this has been a wonderful performing holding but I've recently been selling out of my position when I look at an overview there is still an ongoing thesis to have this company in the portfolio Apple's a dominant hardware and software Tech ecosystem the iPhone is simply too powerful and by what I see technology-wise I don't see anything disrupting the smartphone every other possible disruptor so far has been
• 34:30 - 35:00 vastly inferior it's just too powerful of a device to disrupt there's integrated services like iCloud iMessage FaceTime and so on that maintains this massive Network effect with Apple's ecosystem they have incremental value creation through the integration of AI we've already seen that they're going to enhance Siri with an AI Siri and they're growing their default platform position with more and more active devices that makes the default platform even more valuable we've seen how much money that
• 35:00 - 35:30 Google's able to cough up to pay Apple for that default position so even though Apple has not come out with any revolutionary inventions over the past couple of years it doesn't seem to matter their default platform and their ecosystem has held this company up and grown it the network effects are so difficult for regulation to break up that at this point I think it's nearly impossible Steam for example Steam on the desktop maintains a 75% market share
• 35:30 - 36:00 of PC games despite being outdated with its interface and lots of competitors with lower fees the epic game store for example only has a few games on it even though it's cheaper and it's freely available for every desktop the network effects keep Gamers launching their games on Steam and buying their games on Steam That's The Power of network effects even when you have access to something else seemingly that's easy to use people still use whatever is most
• 36:00 - 36:30 popular now I'm also impressed with Apple's capital structure particularly that they're one of the big tech companies that's not spending a fortune on capex while Microsoft Google meta all of these companies are pouring money into capex to build out huge server Farms Apple's spending that money on BuyBacks they are rapidly reducing their share count predictably growing their EPS one of the most predictable ways you can grow earnings per share is by reducing that denominator through buying back shares now the reduction in share
• 36:30 - 37:00 count lowers the total cost of the dividend payout as well when they have less shares outstanding they don't need to pay out as much total in dividends so they can further push their BuyBacks so overall even though right now I consider Apple a very mature company and I don't see anything in the future that's too revolutionary they're dabbling in robotics and a few other things but right now the core of this company is a powerful platform that has incredibly wide moat and can fun a money back into
• 37:00 - 37:30 BuyBacks that should be enough to continue to grow the stock price in the future now that concludes a basic overview of every company in my portfolio and my thesis behind them if there's ones that you think are better than the companies in my portfolio if there are better higher quality compounding machines that offer really high expected returns let me know what they are I'll be looking over them and doing analysis on them I'm always looking to improve the returns of this portfolio but as of right now I've been happy that that's all for this time see you in the next one