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IFB145: Finding Great Balance Sheets with Braden Dennis

Announcer (00:00):

You’re tuned in to the Investing for Beginners podcast. Finally, step by step premium investment guidance for beginners, led by Andrew Sather and Dave Ahern. To decode industry jargon, silence crippling confusion and help you overcome emotions by looking at the numbers. Your path to financial freedom starts now.

Dave (00:36):

All right, folks, we’ll welcome to Investing for Beginners podcasts 145 tonight; we have our good friend, Braden Dennis, back for another show. He’s going to be talking to us from Canada. He is locked up just like we are, but a, and he’s got some great ideas for us. And for those of you who are not aware of Braden, for those of you who lived under a rock, Brayden works with stratosphere investing. He’s also with the Canadian investor, which is as of today, well I guess more recently is the top Canadian investing podcast in Canada, which is awesome. So congratulations, Brayden. Thank you for coming back on the show. And why don’t you tell us a little bit about what’s been going on? What are your thoughts on all the fun with the market fluctuations, shall we say? And the effects of coronavirus from your point of view.

Braden (01:24):

Fun is a good word that you just use to describe it. Another one would be confusing. And the third one I might use is just uncertainty is the name of the game when it comes to the stock market right now and more than the stock market. Our lives are regular day to days are just kind of in this whirlwind every morning when I open up my laptop working from home, I have to check what day it is. I told Nolan the last time I was in a routine where I just absolutely had no idea. So it is a weird thing, and it is unprecedented in terms of history. This is a game-changer. And for me, the way I think about it with my investments and my customers a stratosphere investing is what are you learning about yourself right now with the Coronavirus pandemic, what are you learning about how you react in a bear market?

Braden (02:25):

That self-awareness is key right now, and that alum lock with how you should think about your portfolio in the future. And right now, if you are panicked on the sell button, then you need to rethink the type of companies you might hold and your style in general. If you’re just not able to sleep at night, knowing that 25% 30% corrections in stocks are actually not a new concept by any stretch. So although this, what we’re dealing with right now is unprecedented, and his historic mortgage drops are not. So you have to take a step back, take a little bit of, you know, self-awareness. And for myself, quality, quality, quality, quality businesses are the ones that you will be able to look in your portfolio and go; I know that this company in five years, ten years, 20 years, we’ll continue to be a great free cash flow generator and compounder. And that is how I look at my portfolio right now.

Dave (03:39):

So are you checking your portfolio every day? Are you like kind of like, I’m kind of just kind of honestly forgetting about it because I know that everything’s down so I just, I don’t get too excited about it? So how do you kind of approach that?

Braden (03:56):

I’m checking up on mostly what just cause I’m interested from a macro perspective, what kind of stimulus that the fed is planning on doing here in Canada, the bank of Canada and then obviously the federal reserve in the US so I’m watching it from that perspective and then obviously I’ll be able to see what’s happening in the market. But you know, it’s a good question because you have to know yourself as an investor. I know that if you were to take a heart monitor to me and see that position’s dropped 10% in a day and I get excited and not like angry or pessimistic, then I know that I can look at my portfolio. If you are not one of those people, then yeah, it’s probably best you kind of tune out. You know, it’s very hard to tune out of the news right now. But if you can not look at your brokerage account every day, that would be a good step.

Dave (04:51):

I would agree with that. And that’s one of the things that I know I’ve tried to do. It helps kind of call my nerves if you will.

Dave (05:03):

There has been a lot of talk about the stimulus package here. Has there been, you know, the news doesn’t talk much about other goings-on in a world, especially when it’s all focused on us. So tell me a little bit about kind of what’s going on in Canada how were, how was the job market? Has there been a huge drop-off with jobs? Like there has been here in the United States, is a stock market in Canada been going crazy just like it has been here. So it kind of helped fill me in as somebody that’s unfortunately not tuned in to everything that’s going on up there.

Braden (05:36):

No, and it’s fair and, and our news is around what’s happening with the bank Canada as well as what’s happening globally and in the US you know, you guys definitely have the most important economy when it comes to the stock market and the global economy in general. So our news is definitely a mix of what’s happening with you guys and the stimulus packages that are being suggested South of the border in America, but the bank of Canada and the Canadian government has said that we are going to get increased employment insurance and what that package looks like. I am no expert at the moment, but it is very similar. You know the freedom dividend from the old yang gag never got, never got to be seen as he dropped out of the race. Yet here we are as it looks like everybody American will be getting checks and then unemployed. Here in Canada, the unemployment insurance is going to be juiced up a little bit as well. Certain companies, utilities, real estate companies have basically been given grace periods. I believe that peak unemployment from this Coronavirus could very well hit great depression levels. The peak of the great depression in the early forties was 24.9%

Braden (07:05):

I would think. We are already getting pretty close here. I look out in Toronto and no small businesses are open as they have been mandated shutdowns of non-essential services, so based on just those numbers alone, the economy looks pretty grim right now. However, it is okay to be extremely pessimistic about the economy right now. It is okay and still be an aggressive net buyer of stocks. You can be both. You can look outside and go, wow, the economy is in rough shape and I don’t see any sign of an improving and still be an aggressive net buyer of stocks right now. Okay. Do you want to elaborate on that a little bit? So I, when I opened up my brokerage account, we was into, when I turned 18 we were already five years into the bull market. No more than that. Six years into the bull market. It’s been nothing but up from here. And if you are a miss a market historian and look back and see that this is the time.

Braden (08:27):

When there’s so much uncertainty and so much pessimistic and finance pessimism and financial markets that this is the time to pick up quality businesses. Assuming that you have looked at balance sheets. I heard on another podcast that this is the reemergence of the balance sheet. Everyone, you know you can have companies that like the last maybe four or five years companies are more than just their income statement. There’s been an extreme amount of capital going into high revenue growth businesses that continue to lead more and more cash to take on more and more debt with no signs of that changing. This is the reemergence of the balance sheet. The first thing people are doing now is checking cash versus current debt

Braden (09:28):

That hasn’t happened since 2008 so I think that’s really important. So if you can validate to yourself that there’s some safety in the balance sheet, then you should definitely, definitely, definitely be a net buyer of stocks right now because the stock market doesn’t wait for anyone. When this eventually clears up, it’ll rebound and you’ll be left in the dust. The stock market does not wait for you. You have to buy on the way down knowing that you will probably never get the bottom and you will catch falling knives. In the short term, but in the long term net buyers of stocks have done well and will continue to do well.

Andrew (10:17):

Yeah, I really agree with a lot of what you have to say with quality businesses. I am here today by the way. It’s just taking it back for the nice you know, to move along with the quality businesses thing, I’m curious on your take, how much leeway do you give a quality business as far as a financial perspective looking forward? Because you know, certain industries are definitely getting hit a lot harder than others. Airlines, cruise ships anything in travel and hospitality, hotels, all those types of businesses getting absolutely hammered. And so where you might have a business that previously was quality and then maybe it might not be and there could be some economic developments out of their control. So looking over the past, the next six, 12 months, how do you look at a business and at what point are you going to say this isn’t a quality business anymore? Or you know, at this is a quality business going through something they can’t control. But I think they’re going to rebound.

Braden (11:34):

That is a very good question because airlines, cruises, vacation companies, hotels, these companies are in very unique situations. In 2014 airlines hit a pivotal moment where they used to bleed tons of and all of a sudden they became extremely profitable enterprises and buying back and sane amounts of stock. I think I saw that Delta has bought back stock with 96% of retained earnings over the last few years, which is just insane because you know they might need to get bailed out. So that doesn’t look too good for them. So when you look at these companies, you bring up a good point. What is the quality at one point and how are they looking right now? Well, hotels, airlines, cruises, these companies cannot survive. Just like any other company cannot survive without revenue. And they’re in very, very unique, interesting and tricky situations right now. And my simple take on it is they are definitely contrarian pics right now, but they’re going to be really, really difficult to time correctly.

Braden (12:57):

I want to know way more familiar, which is Air Canada. Our biggest airline, I got out of the stock a year ago. Just, just because I locked up a nice gain and growth was the valuation had got quite rich compared to when I bought it. And I look at that company at $12 today it is or whatever, and it could go a lot lower. It could go a lot lower. It used to be basically a penny stock in the early two thousand as they couldn’t figure out profitability, neither could any airline. So they weren’t unique in that situation. So you bring up a good, good question. It’s a difficult one to answer because you’re going to have to time it, right? And then look at it more of a trade than an investment in the short term right now. And that’s really, really hard.

Braden (13:56):

It really, really tricky to get right. So I look at all of the opportunities out there and this one’s just really hard. I don’t believe that I have any sort of advantage compared to anyone else in terms of when I pick up an airline or a cruise or a hotel or other companies that are getting completely rocked by this that are completely shut down. Lulu lemon, the retail store, completely stupid, completely closed until further notice. I don’t believe I have any sort of competitive insight or good ideas about trading it correctly, so I’m just going to wait on the sidelines.

Andrew (14:38):

I actually think waiting on the sidelines is the correct move for most of those types of businesses because for several reasons, but let’s just go over a few general ones. Number one,

Andrew (14:52):

Because the market is at such a discount that you have so many great businesses that are going to be at a discount that it doesn’t make sense to, you know, I have to oversee, you don’t have to take that extra risk on a stock that’s in a place where they’re not going to get revenue for two or three months. Right. Like why I do that when I can get this other great business that’s barely going to get affected by the shutdown and that’s still at like a 25% discount. That’s kind of the way I see it. I think what you said earlier is super, super key and something that might be easy to brush over. You know, and you don’t realize how true it is until you live through it. I like the idea that it’s cheap at, what was it, $12 or whatever, but they could go a lot lower.

Andrew (15:46):

That’s so, so true because so many of these stocks, I mean just a few months ago, three, four, five months ago, if a stock had a dividend of like 5% or 6% it was like, Oh man, that business is in trouble right now. You look across the board and it’s not uncommon to see 9% 10% 11% 12% dividend yields and a lot of times you don’t know if those dividends are actually going to get paid or not. So we’re really investing in a new, it’s definitely, like you said, an unprecedented time. There’s a lot going on and you really just, you don’t know how much farther these things can go. And so unless you want to try the time a bottom, I don’t think there’s much, there’s not that much to be lost and waiting and just letting the dust settle. Like for me, I would like to weigh at least a year after, you know, once you can see, you can see the financial implications of this and the annual report in the years to follow. So, you don’t have to try to be some sort of genius who picks up diamonds from the ashes. You can kind of wait until it becomes more clear. And you know, I know there’s a lot of other great businesses out there that aren’t necessarily as impacted on the current virus. I know Braden off the air. We were talking about a couple that have caught your eyes. So tell us, tell us a little bit about those. And what about the market situation now makes them very, very attractive?

Braden (17:30):

Well, what you just said about other opportunities also being discounted is extremely true. And, this is exactly why you look at something like an airline and you have to time it correctly and look at something that is not going to be as affected. They’re still going to have revenue at a minimum and still down. It’s the rubber ducky in a bathtub scenario where everything’s down and the ones across the bathtub that are far from the leak are still going down because everything is, and there are more sellers than buyers. And that’s why stock markets go down. So that’s a very good point. And I’m going to, I’m going to give a, give a little pitch for two companies that I think have the most powerful duopoly in the world that have been traditionally thought of as quite expensive. And I’ve got to tell you why I think that’s not true.

Braden (18:37):

Visa and MasterCard have dominated payments in developed nations for a long time with tons of room for growth in emerging markets. As we become a cashless society, we look at these two companies and we think, Oh everyone already has a visa and MasterCard in their pocket, go to South America, go to India, go to Africa, go to parts of Europe. They are still a primary cash society, not cashless. So these two companies, I get to talk about them equally because I would simply own them equally weighted. And I think there’s a very important distinction that we have to clear up right away with these companies. They’re always bucketed as financials, but neither visa or MasterCard lend any money. And you might be thinking how, how is visa and MasterCard not landing in money? They are simply the solution between merchants and consumers in a cashless transaction.

Braden (19:48):

The banks and other financial institutions are the ones that actually issue credit and they take on that lending liability. So banks and these companies like visa, MasterCard are so mischaracterized and they should actually be characterized as technology companies. And that’s that in itself a lot of investors, you know, flip the switch in terms of how they value things. I am not in that camp by the way, but I believe that they are technology companies. So given that a couple of percentage points are taken off the top from, from merchant and visa, MasterCard doesn’t get to take this line share that goes mostly to the financial institution taking on the liability of giving out credit. Visa and MasterCard take a much smaller the pie like 20 basis points, like 0.2% or less depending on the transaction, usually less, but it’s like a death by a million paper cuts scenario where they take a sliver off of every single transaction.

Braden (20:54):

Now that we’ve cleared that up that they’re not a financial company. Let’s talk a little bit about numbers. So the global players, 362 billion in market cap, 250 billion Mark gap between visa and MasterCard respectively, and this was 100 billion in market cap more a month ago or a month and a half ago. They have produced very, very similar metrics over the last decade. Low tens and revenue growth consistently, not missing a beat, a 12 and a half percent or almost 13% in compounded annual revenue growth and low 20s and earnings growth and high 20s and even greater some years in free cash flow growth. They’ve been an incredible free cash flow generator and they have insane free cash margins. They’ve gone from 10 years ago, Visa had a 30% free cash margin to 52% free cash margin and the result of that is a compounding machine that has not missed a beat with no signs of slowing. There’s this law of large numbers and I’m seeing this look, a lot of us large caps, as I, as I kind of look into your market more and more during this pullback and the law of larger numbers for some of these companies.

Braden (22:16):

Amazon, Facebook, Google, visa, MasterCard. I used to think they’re so tremendously overvalued. I did. I was in that camp and some of those I just listed are, but the law of large numbers for them, it’s just not a thing when they’re growing Amazon’s growing revenue 40% a year. It’s just insane. So the deep competitive advantages that visa and MasterCard have that creates such a strong duopoly really comes from, there’s no competition globally outside of China with we chat and poly pay. There are innovations happening in payments, but there’s no intention of people trying to innovate a new credit card. If no one takes your credit card, well then no one accepts it. And if no one accepts it, then no one uses it. No one has it in their pocket. You run into a very strange chicken and egg situation and, and first to market here with visa and MasterCard is very important. So if you don’t have the card that the merchant is going to take, will you just, it doesn’t matter. And there are very important innovations happening inside of FinTech, but there’s no disruptors and Visa and MasterCard.

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Andrew (23:48):

I imagined too, I mean, I don’t know the exact economics between like the value chain of, you know, I give my credit card gets a process, goes to the merchant and you know, there’s somewhere in the middle, but I imagine it has very high switching costs. And so it would probably be easier for visa and MasterCard to raise rates by, you know, 0.01% or whatever, however much they wanted to do it year after year after year and still sustain a lot of their customer base. And that probably leads to pretty nice competitive advantage. And I can, I can speak to that cause I have experience with that as a restaurant, a person I don’t with the credit card processing people and boy that was lots of fun. They they’re a tenacious bunch of shall we say, but that’s what they compete on is the price of the transactions.

Dave (24:51):

And like you were saying, Andrew, they do have pricing power and switching is a colossal pain in a bud because you not only have to, you have to make sure that your point of sale processes the processor that you want to switch to, which is, can be complicated because not all the processors are configured to work with the different point of sale systems in, in each restaurant. And it’s not a, not a standardized system across restaurants. And so you’ve got that to deal with. Then you also have the deal, the deal with the change of how the credit card is processed and when you get the money and getting all that set up with your bank because different banks will handle those processes differently and the different processors that you work at work with, we’ll give you your money anywhere from one to three days later. So if you and Braden go out to eat and you pay with your debit card or credit card, the restaurant may not get their money until Saturday. And so that ended up itself causes a switching problem as well. So it’s, yeah, it’s, it’s I can, I can speak to that part of their business. It’s, it’s definitely moat proof at this point.

Braden (26:09):

It’s incredibly sticky. For those reasons that you just mentioned it unfortunately during this that it’s not necessarily a pleasant experience, but I do want to mention that primarily if I, if correct me if I’m wrong, you are talking about the technology of the point of sale system and that’s where there is competition. However, visa and MasterCard are the rails, the network, the infrastructure that this all competes on top of. And that’s what’s really, really important is that yes, there is competition in FinTech, but good luck your startup out of Silicon Valley, going to angels or venture capital and proposing a new competitor to the rails network that visa and MasterCard have built. They will laugh you out of the room because it has failed over and over again to the point where no one even tries anymore. And what you were talking about is primarily the point of sale system.

Dave (27:28):

Yeah, exactly. And I think sometimes people get a little confused about like for example, some of the wallet options that the phones have been offering recently, like Apple pay and things of that nature. Those are just another form of a, of a processing system, but it still uses visa, MasterCard, Amex, whoever you put that card in, it’s still using the same kind of system. So it’s not really like you said, it’s not really interfering with, with them.

Braden (27:59):

In fact, it’s an organic growth driver for these two businesses and they didn’t invest a dollar, they didn’t have to invest off their balance sheet to create growth. When you have innovators like Apple coming out with Apple pay, which has been quite successful, this is driving organic growth for visa and MasterCard. Everyone in the world that takes Visa and MasterCard is doing their best to drive business for them. And it’s like that affiliate marketing type of revenue model, or not revenue but marketing model. It’s incredibly powerful when you don’t have to put towards any capital to grow and everyone is growing for you. You run into an incredible business model and these two companies have just got it. They got the sauce.

Andrew (28:59):

That really sounds like they have a lot of things working for them. And like you said, I mean, if you are truly the rails and this network that’s really putting all of this together, that’s going to be really hard to replace. You did kind of read my mind a little bit. And so that it’s going to be what my next question was anyway, but balance sheets. So not to put you on the spot, but what, what is the balance sheet situation for each of these businesses? Because obviously liquidity is a big issue now. There look to be some rough patches in the economy in general over the next several months. So how does that Situation look for these companies? As of right now?

Braden (29:49):

Sure thing. So these are, for instance, we’ll use for the sake of this exercise, ended fiscal 2019 with about 21 billion in current assets and 8 billion in cash or cash equivalents on the liability side. Current liabilities were half of that. At 10 billion. A total auto, sorry. Correct that total liabilities. Total current liabilities were 13 billion ending fiscal 2019 from total assets to total liabilities. Two to one. Basically, on most metrics they do have that seven, nine, 8 billion in cash for a company that’s you know, 400 billion in market cap. That seems like peanuts when you look at it compared to a Berkshire or an Apple or Facebook, they have deep, deep piles of cash, nothing to do with it. At this point. You bring up a good question there. Their balance sheet is like all of those things I listed were mostly qualitative selling points. Check out their income finance and their balance sheet and their cash flow statements and it is gravy man. This is like all of those things I just mentioned are very nice qualitative, longterm, deep competitive advantages. You’ll be really interested in the stock when you see a 10-year income statement or a 10-year free cash flow statement growing free cash flow. I almost 40% compounded annual growth rate. But hopefully, that answers your question on what they’re looking at in terms of current liabilities and assets.

Andrew (31:41):

Yeah, no, it does. Let’s, let’s wrap up the episode like this. That was, this was really enlightening. I really enjoyed the conversation. I think from here, you know, there are definitely some people who are interested in checking out these stocks, checking out other stocks like this. So when we mentioned the balance sheet, can you walk through for like a beginner? What sorts of things should they look for? And then particular I’ll, I’ll add my 2 cents into because I have several positions in my portfolio right now. One is airlines. That’s, that’s a pretty big position for me of an airline stock. I also have a cruise stock and these were bought before coronavirus so I also have an energy stock, so wham, bam. Thank you, ma’am. So I have, I have, you know, lots of sheet research to do and have been doing in order to be like, Oh crap, are these companies going to survive? Right. So I guess that’s kinda two ways. I think that could be really helpful for investors. So can you point in the first situation somebody who wants to look at a balance sheet and wants to know where the look first, where would they do that? When it comes to Visa, MasterCard, or any cool idea that they have for a stock moving forward.

Braden (33:12):

So right now the first thing that people, I talked about the resurgence of the balance sheet. The first thing that people are doing is do they have enough cash on hand to make their short term liabilities. So when we’re talking about current assets and current liabilities, these are things that are due or can be converted into cash within a year typically. And they need to be at the minimum be able to pay their interest payments on longterm and short term debt. That is the key. And when you look at these airlines, things get really, really complicated because typically you look at cash and you go, okay, maybe, maybe they can’t pay all their liabilities over the year in cash, but they’re also generating free cash via the business. When a company like a cruise line has at least maybe 90% of their revenue shot. I mean they still have some accounts receivable based on people basically soaking the cost of the cruise and not going, but no business can survive without revenue.

Braden (34:29):

These businesses that have interest payments to make short term liabilities, you gotta be able to make sure they can cover it and it gets really, really scary when they can’t. And it’s just the situation that we are in that many won’t be able to. It’s just the way that we are in a very, very unique situation. So investors need to be aware of that, that there could be a massive shakeup in the economy and in the companies that we look at right now in the next three-six months. Who’s to say, I have no idea if I knew for sure. Well, I would be the richest person in the entire world because I’d be able to just day trade my way through a couple of money multipliers. The fact that that is not possible leads to uncertainty that rules this market right now and that’s what we’re dealing with.

Andrew (35:34):

I agree with that. There are just so many different things and I think if somebody who’s like absolutely agreeing to this and doesn’t even know where the begin, try not to freak out. Yes, the numbers are there, but there are also a lot of different factors that go into the numbers. I’ll give like a quick example. So let’s, let’s go back to the airline stock example. This is going to be talked about a lot in the months to come and, and as people dissect what really went on here, but that’s just been absolutely insane how little liquidity these airline companies carried. And when I say liquidity, I basically mean cash that’s available on hand. And so that is a big reason why a lot of them are calling for bailouts because they just don’t have the cash because none of them ever thought that, you know, they wouldn’t have flights happening.

Andrew (36:37):

You know, what was it like a day was the longest day had been closed after nine 11 or however long it was. I don’t, I don’t really remember, but you know, that was a factor. But at the same time, they also had a bunch of cash, they’ve had record earnings and, and all they did was buy back shares a lot of the businesses, you know, Brandon, you talked about Delta did that and other airlines still American airlines to call one out loaded up with tons and tons and tons of debt. I looked at the American Airlines balance sheet recently and they have negative equity, so they don’t have shareholders’ equity. They have a shareholder’s deficit. So that’s going to be interesting. In my just like uneducated, whatever, like I feel like they’re the ones most likely to get bailed out cause her name has American in it seems like it just seems like something people in power would do, but you know, anyway, so, so a bailout could come and make the numbers work for some of these businesses.

Andrew (37:48):

Somebody could come in. So this happened with Occidental, I don’t know how to pronounce them. Ticker symbol O X Y they were having some big liquidity issues. And then Warren buffet came in and said, here, I’ll loan you a bunch of money. And I don’t know what the whole terms at the dealer were, but I’m sure if it was Buffet, he was getting something out of it that was very beneficial for him. So it doesn’t always need to be a bell out from the government. Other people can loan these businesses and corporations money. That doesn’t necessarily come from a traditional bank. You could have a, even if a company doesn’t have cash, they could have a lot of big assets that they could sell. And so that could keep them afloat through a time like this. And so, you know, I think it’s a, it’s a good exercise to look at, okay, what’s the cash, what’s the current liabilities?

Andrew (38:47):

Like Braden said, what’s the current assets? So, you know, current assets will tell us how much cash do they have, how much are they accounts receivable? That’s money coming in in the next six to 12 months. And a couple of those other things, you know, what, what, what type of money do they have invested that they can pull out really quickly? And then you can compare it to the current liabilities. And you can kind of, I wouldn’t say you just look at those numbers and be like, Oh, they’re going to die or Oh, they’re fine. I think maybe using that and comparing them to other businesses in the same industry. And I think what you’ll tend to see is the, you’ll see the weak ones will be the ones who take the biggest brunt of it and end up going under while the other ones will find a way to survive.

Andrew (39:35):

But that’s because they’ve had relatively stronger balance sheets and you know, some of that can be attributed to having a stronger brand name too. So you know, if you have an airline that has a better brand you know, kind of like customer Goodwill than another, that one might be more likely to survive or you know, even get bought up by somebody else. So if they get bought up, now you’re in a situation where you probably made a profit on your shares instead of felt like you’re going to lose all of it. And so that’s where something like, you know, kind of going back to the MasterCard visa thing, having name recognition can really be a huge factor that you don’t see in the balance sheet, but it is a factor in not only the way that the business runs but also in the way that it plays out in the stock market as well.

Andrew (40:30):

So I think those are all things to kind of consider. Hopefully, it wasn’t like shooting you with a fire hose, but you know, different factors will go into these balance sheet numbers. Revolving credit is something you’ll hear a lot too. A lot of these businesses have basically like lines of credit and so they’ll, they’ll start pulling from it. And you know, we talked a couple of weeks ago about the eight K SCC form. And so that’s the form that companies will send out when they’re updating you. Management wants to tell you what’s going on. And so I’ve been getting a lot of emails about different companies in my portfolio who might be pulling from their revolving credit lines. And so they’re building cash in those ways too. So I think somebody going into it maybe might feel really, really overwhelmed. Just try to take it a step at a time.

Andrew (41:20):

These businesses won’t disappear overnight. But if you at least do let’s say 30% of the work of knowing, Hey, this is what general balance sheet looks like and it’s way better than this competitor and it’s comparable to this other competitor. That’s the type of analysis that I think puts you that much further ahead and gives you that much more of a confidence level to be able to stick through this storm and understand that most, not even most a high percentage of the businesses involved are going to get through this. That’s just how it’s always been and that’s how it’s going to be. And that’s because humans are resilient. We are fighters and we will push through any adversity like this.

Braden (42:10):

You bring up a good point and People who are looking to potentially pick up these stocks on the cheap, they should be aware, you know, chances are bailouts will ensue and you know, they won’t go to zero. However, these bailouts are going to come with all kinds of conditions, whether it’s, you know, buffet throwing the life raft as you mentioned, or the fed bail in the moat, all kinds of conditions, all kinds of share dilution. So it’s not a free ride. I think that notion has been tossed around during the last couple of weeks. It’s just not the case. However, knowing that backstop likely does exist is definitely reassuring.

Andrew (43:05):

Dave, you had, did, did you have city group back in the day when it went like from like 90% lost? Yeah, my ex-wife did actually. She bought it at the time and yeah, it went, it went down 90%. And then not too long after that they did a nine for one share stock split, which was even more you know, awful. So, you know, instead of having one share, you got nine shares for your 10 bucks. So it went down to a dollar a share instead of $10. A share was, it was ridiculous.

Andrew (43:44):

So that little split is like, Oh, let’s just sweep that up. Yep. Pretty much. I don’t remember if they had a bailout or not. They

Dave (43:52):

They were, they were, they were part of, they were part of the, the Oh gosh, I’m going to blank on the names of the banks. But yeah, they were definitely, they were definitely part of the group to fail. Yeah. They were part of the too big to fail and they were definitely part of the group that got caught with our pants down with the subprime mortgages along with Bank of America. Yeah. Lehman brothers. So yeah, there were, they were definitely part of that.

Andrew (44:18):

Yeah. So that, I mean, that confirms Bradens’ point. Exactly. You know the business survived and hopefully more people kept their jobs, but the shareholders or the ones who took the brunt of it, yeah, they definitely, they definitely got hosed, that’s for sure.

Braden (44:32):

So I sound awfully pessimistic about the economy. Some, some companies, it’s true. And this comes back to my point. It is okay to be aggressively pessimistic about the economy and you probably should be

Braden (44:56):

Yet you can still be aggressively buying stocks right now because in a few years you will thank yourself. You absolutely will thank yourself. So stick to quality knowing that you’re making the right decision at these companies that can at least make these liquidity ratios that you just talked about, the current ratio and liquidity, a quick ratio being over one, that’s a very good start. Being able to make sure they meet those short term liabilities, but still, you can be an aggressive net buyer of stocks right now and you will thank yourself. So it’s okay to think to the, to be a little confused. Most people are. That’s, that’s, that’s totally normal. But you will thank yourself as an optimist, longterm investor.

Andrew (45:52):

Can we get a guarantee on that? Yeah, and I’m, I’m willing to say you will thank yourself.

Braden (46:03):

Totally. Okay. Sounding off on a five-year term

Andrew (46:07):

Five-Year. It’s easy. Yeah, I think we can all agree with five years,

Braden (46:13):

Six months. It can definitely get much worse before it gets better. And if you can ride out that volatility than Hey, all the power to you, if you can’t write up that volatility, then you need to be making different decisions.

Andrew (46:32):

It’s really well said. Thanks for coming to Braden and this has been fantastic. Where can we learn more about, you hear more from you and all of those sorts of things?

Braden (46:42):

I am on a weekly podcast called the Canadian investor, which is available in other places you get podcasts. We have a weekly episode right now we’re doing a little bit more than a weekly episode if you have time and the markets are so interesting right now. And then additionally on my website, stratosphereinvesting.com but if that’s too hard to spell, I can’t blame you. Go to getstockmarket.com. That is Get stock market.com and that’ll redirect you to my website.

Dave (47:16):

Awesome. Well, thank you very much, Braden. We certainly appreciate you taking the time out of your busy day to come to talk to us. And this was a lot of fun. I, I know I worked a lot, so that was awesome.

Braden (47:25):

Wait, wait. Busy day man. I’m going to be on the couch.

Dave (47:30):

I’ve got nowhere to be. I was trying to be optimistic. All right. I appreciate it. No CAC. Thanks for having me, young guys. This has been fun. All right folks. Well, that is going to wrap up our discussion for this evening. I hope you enjoyed our conversation with Braden. I know I certainly did. It was a lot of fun and I learned a lot, a smart guy and a very energetic and outgoing. I love him. I’m gonna go ahead and sign this off. You guys go out there and invest with a margin of safety. Emphasis on safety. Have a great week and we’ll talk to you all next week.

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