[00:03:09] Kyle Grieve: Thank you. So I’m a self-proclaimed fanboy of Braden Services, FinChat, which encompasses Stratosphere as well. It’s an incredible product for any stock picker who wants access to a lot of historical data and a lot of other really cool metrics like KPIs and compound annual growth rates. And there’s so much stuff you could do with it.

[00:03:27] Kyle Grieve: So FinChat also has a very novel way of utilizing AI in the investing process. We will be covering this in a lot more detail, but I want to begin this discussion by asking more about your history as an entrepreneur and how this has helped you as an avid investor. So my first question is about your entrepreneurial journey.

[00:03:42] Kyle Grieve: What life events and experiences caused you to follow this path? 

[00:03:46] Braden Dennis: I always knew from a young age that I would try to do something entrepreneurial, and you don’t know what that’s going to look like. You don’t even know what you’re going to have for dinner at that time, let alone what you’re going to do in 10 years career-wise.

[00:04:00] Braden Dennis: But my first instinct or first foray into what resembles entrepreneurship was actually when I was a student. I was running my own tutoring business, which I look back on and cherish some of the hilariousness of this venture. I was in my third year of my engineering degree, and I had this awful gap of three hours between my 4:00 PM lab and my dreaded 7:00 PM night class.

[00:04:34] Braden Dennis: There’s not a lot going on, nothingness during this time. And of course, I could probably go be productive and do my work, but Kyle, that just was not going to happen. And so I was proficient at math and sciences from a young age becoming an engineer was a natural fit.

[00:04:51] Braden Dennis: And for a senior engineering student, high school math, It’s not only a breeze dare, I call it fun, and I can’t recall what sparked me to do this, but I posted on the local classifieds engineering student at the University of Guelph available to tutor high school math and physics. My goal is just let me just fill this gap and make some beer money essentially.

[00:05:16] Braden Dennis: I got a couple hours here and I recall getting 20 plus parents. Frantically calling me, texting me, emailing me, are you available like tonight? It wasn’t just, Hey, next semester my son or daughter has physics class and I want to get prepped. It was like urgent, and I had to actually take the post down because within two days I was fully slotted with what I wanted.

[00:05:44] Braden Dennis: I had these four hour, six hours blocked away with four. And it, I got them to actually bring their kid right to campus in between my classes. So it couldn’t have been more convenient for me. Now, it was not a ton of money, but I was charging like 40 to 50 bucks an hour for, at the time, for me Kyle this felt like I was rolling in it, and that was probably my first actual experience.

[00:06:12] Braden Dennis: And I learned a lot from it. And this is what I say to anyone who wants to do anything entrepreneurial is you learn by doing the damn thing. There’s no really, there are amazing books that I’m happy to talk about that I’ve learned and stole ideas. There’s so many mentors that they don’t even know who I am, but I learn a lot from them.

[00:06:33] Braden Dennis: But nothing kind of replaces, like actually having to do the work and learning from customers over time. 

[00:06:39] Kyle Grieve: Being an entrepreneur carries different responsibilities and being a pure investor. I’m interested in learning more about who your biggest inspirations in entrepreneurship were as you transitioned away from engineering into entrepreneurship after your, obviously your first foray, which was while you were in school.

[00:06:54] Braden Dennis: I learned a lot from my first four or five internships with a company called Magna International. It is a Canadian-based auto manufacturer. They have. Around 350 auto manufacturing facilities around the world, Europe, Asia, south America, Mexico, US, Canada, and I learned something very important that runs the world of auto manufacturing called Kaizen.

[00:07:26] Braden Dennis: This is a Japanese term, made to mean continuous improvement. That’s what, that’s the translation from Japanese. And that word Coming from, the industrial revolution of the Japanese being such proficient and prolific manufacturers, especially in the auto industry, and they are still today, Kaizen rules their world.

[00:07:51] Braden Dennis: It’s how they actually produce margins. It’s how they continually get better. It’s how they automate more processes. And so it is the thought of continual improvement. And this was a big part of the culture, like I would say, the largest part of the culture and how the companies in that space orient themselves.

[00:08:14] Braden Dennis: And this made a really lasting impact on me with almost everything like. Whether it’s health, whether it’s my business, whether it’s trying to be a good guest for this podcast, it’s like, how can you learn from all the stuff that you’ve done and just continually get a little bit better, and that’s all that Kaizen means.

[00:08:34] Braden Dennis: And if you do that for, a lifetime, it leads to like tail effect, like tail outcomes that you wouldn’t expect if you just keep doing it. 

[00:08:44] Kyle Grieve: So you mentioned that you were on you were an engineer and one of my big mentors who has no idea who I am, is Mohnish Pabrai, who was also an engineer. So what experiences from your engineering background do you think have helped you become a better investor?

[00:08:57] Braden Dennis: Certainly how to think about problems. I believe there is a direct correlation between success in a career and success of a business directly correlated. If you’re to graph them out XY axis to problems solved both in number of them and complexity of them, there is a, you multiply those together and you basically get some resemblances of career success.

[00:09:25] Braden Dennis: And so that’s what engineering is, right? Yeah, you learn math. Yeah, you learn physics. You basically just learn how to think and learn how to solve problems, and you can translate that to anything. It definitely translated to how I think about businesses qualitatively and importantly, qualitatively as well when it comes to things that made big impacts on me.

[00:09:50] Braden Dennis: I’ll give you two examples. And the first book I ever read was called The $100 Startup, which you can find at any bookstore. It’s become a bit of a popular book, and really the right idea around it is start with a small idea and go for it. And so that got me to actually do something and take action.

[00:10:07] Braden Dennis: I think any book that gets you to actually take action is really good. And the first autobiography I ever read that has a lasting impact on me is called The Magna Man by Frank Stronick. He’s talking about his company there. And he had a really unique insight on how to build a billion dollar franchise.

[00:10:24] Braden Dennis: His goal was to make as many of his employees and trusted plant managers, make them multimillionaires in as large a quantity as possible. He figured that the unit economics would flow back to him very handsomely. He would be rewarded in droves if he made as many multimillionaires as possible. And he made a lot of them like in the thousands.

[00:10:51] Braden Dennis: And so that thesis was clearly correct and played out well. And I think about that a lot. Me and my co-founder sat down. We thought what do we want from this business? Like financially, what do we want? Lifestyle? What do we want financially? What do we want impact to have? What do we want people to feel when they use the product?

[00:11:08] Braden Dennis: And I said, as CEO, financially, it is my job to make sure every single one of you have at least 1 million liquid from this venture. If I didn’t do that, I failed as a CEO. And I think that those kind of like goals give you kind of ground for what you’re doing. And of course not every venture is just about money, but it’s an important one in the beginning of these companies.

[00:11:32] Braden Dennis: And the Magnum Man by Frank Stronach taught me that. 

[00:11:35] Kyle Grieve: As I previously mentioned, I love FinChat and part of the reason I like it so much is that it simply does a lot of things that I couldn’t find in any other products. So how have your abilities in entrepreneurship and investing helped you create this product?

[00:11:47] Kyle Grieve: And what made you want to create FinChat in the first place? 

[00:11:50] Braden Dennis: Well, thank you for mentioning like the product I’m glad to see so many people say that these days. It’s been kind of amazing to feel that. And you know what, the one thing I want to really make clear, with this podcast is we still feel like we don’t know what we’re doing.

[00:12:07] Braden Dennis: And I think that’s like always going to be there. You always just kind of feel like there’s something better we could be doing. This could be optimized. There’s like an endless amount of work to do. I’m just trying to learn from people like you who learn, who use the product as much as possible.

[00:12:25] Braden Dennis: Like my original kind of thesis for creating it was basically to scratch my own itch, was to create a product that I wanted to see and just started working on it as a kind of side project. But really at the end of the day, like it’s for me to be able to learn from you, get the feedback on the product, iterate on it, and just keep doing that over and over again.

[00:12:48] Braden Dennis: I think that’s ultimately what you get is a good product. And that goes back to continual improvement, right? If you give me one good piece of feedback, I write that down and I go do that one. I made you happy customer. Two, our product got continually better and we’re just going to do that in ship over and over again.

[00:13:08] Braden Dennis: So yeah, that’s how I think about that. 

[00:13:11] Kyle Grieve: So one of Warren Buffett’s most famous quotes is, I’m a better investor because I’m a businessman and I’m a better businessman because I’m an investor. So since you are both a businessman and an investor, I’m interested in knowing if you feel this quote is accurate.

[00:13:22] Kyle Grieve: What areas of business have you taken to become a better investor and what areas of investing you’ve taken to become a better entrepreneur? 

[00:13:28] Braden Dennis: I do think that quote is very accurate, and there’s no one better equipped to say that quote than Mr. Buffett himself. Not only being Buffett the investor, but Buffett the businessman and Buffett the entrepreneur, Buffett the value creator, Buffett the employer of many people, creating a lot of amazing opportunities for people.

[00:13:52] Braden Dennis: And I do think that it’s right. And one thing that it has changed for me as an investor is I’ve always been a fundamental long-term investor. Where it changed for me is that focus really consolidated too. I only care about analyzing these companies at the core and being rational at assessing them, understanding what makes them tick, understand the numbers and the KPIs that actually move the needle for these business, and basically ignoring everything else.

[00:14:24] Braden Dennis: I think what it’s actually done for me has been more selective in what I pay attention to more than anything, and that’s been really instrumental to me. It’s taught me a lot about concentration, being a little bit more comfortable with concentration. It’s basically led to my ideal portfolio turnover being zero.

[00:14:44] Braden Dennis: Of course, that’s, harder said than done, and I think the product is especially useful for someone who’s doing this kind of research. It’s not really useful for someone who figure, who’s trying to figure out what Amazon stock’s going to do right at the close at 4:05 PM It’s wonderful for those specific use cases that I.

[00:15:03] Braden Dennis: Actually work. I’ve never been convinced that it is a worthwhile pursuit to invest the previous way than the latter way. Of course, you can make money that way. I’m sure and lots of. I’ve just never been convinced that it’s a satisfying way to run your career and intellectually think about things all day long.

[00:15:23] Braden Dennis: You, you have a certain amount of brain power and time on this earth. Me trying to figure out what Amazon’s going to do at 4 0 5, the earnings close is not something that I want to spend my time doing. 

[00:15:32] Kyle Grieve: I know you just raised another 1.5 million in funding for FinChat. How has your experience been in the fundraising process and what are some of the key lessons that you know now that you wish you knew earlier?

[00:15:43] Braden Dennis: Fundraising gives you the ability to live in the future. Now, fundraising in itself is not a milestone, and fundraising is a lot easier when you have a great company and a lot of momentum. I think startups are defined by momentum in almost every single facet, and fundraising is no different. In the early days, the people who are doing sales, doing fundraising, usually that’s like the founding CEO, and their job is to convince people to pay attention to what you’re doing, convince people in this case to give you money in what you’re doing, but in itself, it’s not a milestone.

[00:16:22] Braden Dennis: It is a tool to live in the future. So if it’s things that we would be probably having to do in a year from now, we can do now because we have the ability to, and we have the resources to, we can grab the human resources to be able to do things that we want to do. And so it really just, it’s just oh wow.

[00:16:40] Braden Dennis: Wire hits the bank. I’m living in 20 twenty-five. In terms of the things that I’m able to do, instead of having to wait, 

[00:16:47] Kyle Grieve: I like to switch our focus to FinchApp. When you first decided to create stratosphere.io, what was your initial target audience? 

[00:16:55] Braden Dennis: Initially it was self-directed investors, people like myself, family and friends that I thought would be interested in the product.

[00:17:04] Braden Dennis: I’m also on a weekly podcast called The Canadian Investor, and it was basically a product to give to that audience. I thought it fit, our content well. It fit the self-directed investor. Nowadays we have built something so extensive through the years where tons of professional firms are using the product.

[00:17:26] Braden Dennis: And our bread and butter really is like small family office, three to five analyst firms. That are long only on the buy side who don’t have complex software buying processes. It’s not that we can’t serve the huge investment banks, the 50 billion AUM companies we can, I think the product fits for them extremely well too, but they have really complex, long buying processes that we don’t currently have the muscle to flex, to be capable on winning those.

[00:17:55] Braden Dennis: But we’re certainly gearing up to, to think about winning those and having the muscle to flex on that. That’s a big push for us right now. But in the early days, those can deserve as a giant distraction. When you’re used to buying processes for these subscriptions, taking maybe a fifteen-minute zoom call to a fifteen-month drawn-out paperwork of with lawyers and costs that you cannot absorb.

[00:18:21] Braden Dennis: It just doesn’t make any sense and is largely serves as a distraction. 

[00:18:25] Kyle Grieve: So I’ve used AI quite a bit to help me understand things better, but one thing I’ve noticed is that it’s woeful at anything to do with math. How have you found AI’s mathematical limitations while you integrate AI into a financial platform?

[00:18:39] Braden Dennis: This was six to eight months of US iterating, tweaking, prompt engineering, building out internal technology to turn natural language with AI into querying a database of institutional financial data that we know is correct and confining its responses to that, and that comes with pros and cons. I think almost all product decisions comes with pros and cons across the board when you’re building software.

[00:19:08] Braden Dennis: This means that it’s extremely good and reliable at answering questions related to public equities, whether it’s qualitative, quantitative screening, make me a graph of Costco’s, EV to EBITDA, stuff like that. It’s extremely good at, but if I’m just like, reach into your brain and do something, it basically won’t do that.

[00:19:31] Braden Dennis: And so that’s a conscious decision we’ve made to make sure that investors are getting the right answer. Here’s a great example, which was like an amazing thing for our marketing, Google Bard. I asked it, what is Amazon’s Amazon Web Services revenue last year in And? It replied, Almost the correct number in Finch.

[00:19:51] Braden Dennis: Accurate turns a correct number as They got the decimal point wrong. It might seem like such a small thing, right? If I’m just doing quick and dirty math, what’s the difference between 80 point, what’s a, what’s the difference between a billion, between friends Right? Of a company of this scale, but when it comes to investors and financial data, that’s just not acceptable.

[00:20:15] Braden Dennis: It really is just not acceptable. To hang your hat on that, to build a presentation and invest your client’s money based on incorrect information is not acceptable. We’ve built our entire product and thesis with that in mind. 

[00:20:30] Kyle Grieve: So do you envision a future where AI is better at understanding math and what kind of opportunities you think this would open up for your platform?

[00:20:37] Braden Dennis: It can be really good at math with the right prompt engineering and the right tweaking and the right use case today. I think generically LLMs have been built and trained on largely text-based. We are in half. We’re, we’re on batter two of the, top of the first inning, like it is so early, and I know that’s such a cliche thing to say, but this was a 2023 story chat.

[00:21:04] Braden Dennis: GPT, reached five, reached 1 million users in five days. It launched on November 30th, so on December 4th, roughly, it had reached their first million users, which was a record for a tech product of that size. But, we’re getting into the holidays at this point in 2022, by the time everyone knows about it, and by the time it kind of stole the conversation both casually and professionally was in the winter of 2023.

[00:21:35] Braden Dennis: So this is, we’re recording this in 2023, basically a year later. And I believe that it is still the very early innings and it’s going to get, continue to get so much better. The pace of iteration, it just seems every day, whatever you thought was exciting is no longer exciting. There’s that new thing that’s going to happen a lot over the next five years and it’s going to get tiring, but it’s it’s going to be happening regardless.

[00:22:00] Kyle Grieve: So I recently asked FinChat, what moat does Apple have? And it gave a surprisingly good answer on the strength of its brand, which leads me to believe that there are some use cases for AI and FinChat in particular in terms of better understanding a company qualitatively. How do you think we can use AI today to improve our qualitative understanding of a business?

[00:22:20] Braden Dennis: FinChat can do a lot of comprehensive and challenging tasks from build me a discounted cashflow model on Company X, Y, or Z. Give me a list of companies that meet criteria X, Y, Z. It’s really good at doing all those things already, but when it comes to qualitative. I still really love the most basic prompts of what does CrowdStrike like actually do?

[00:22:50] Braden Dennis: What does Datadog do? Who are their, like, why does anyone use this? Explain like I’m five, like for ramping up on an idea. I think is where it really kind of shines because we’ve loaded it with all those like KPIs and segments and transcripts and filings. Like it actually has a pretty deep understanding of all of these companies and those things are really kind of instructive on phase one of your research.

[00:23:17] Braden Dennis: And just really understanding, like for me as an investor, I start with quality first all the way down to quantitative. It’s not that I, one’s more important, it’s just that’s how my brain works and I actually, evaluation is an extremely part of my important part of my process, but I do it last and there’s a reason for that.

[00:23:39] Braden Dennis: That’s really what I love FinChat for right now. At risk of sounding like a, a very simple prompter. I think simple is good with almost everything. 

[00:23:49] Kyle Grieve: It seems like AI is improving on a pretty regular basis, like you just pointed out. And the potential use cases are starting to expand. So let’s look into the future a little bit.

[00:23:58] Kyle Grieve: What are some future uses of AI that you are looking forward to integrating into your platform that maybe aren’t available to you today? 

[00:24:05] Braden Dennis: I’m really excited about Fintchat being task-based, and what that means is that today it’s very retrieval-based. And what that means is give me. Uber’s total revenue by year over the last, since they’ve been public or, since their fi, their S-ONE data’s available or give me Airbnb’s take rate over the last, like four quarters.

[00:24:35] Braden Dennis: And it’s really good at taking that, chunking it up, giving me the right answer and summarizing it. And that’s retrieval of information that exists. I think summarizing is also another retrieval type prompt. Task-based is what we’re just starting to scratch the surface on, which is, build me that DCF, build me this screen, build me a report for my clients, build me a graph that has Netflix subscribers compared to Disney’s plus subscribers.

[00:25:06] Braden Dennis: Make the Disney color blue and the Netflix color red and put my logo on it and make a summary of why to my clients, or at least the start of a summary to why my clients on why we own Netflix compared to Disney. Actually add the average revenue per user globally. Let’s also put that on the graph and as a line chart.

[00:25:28] Braden Dennis: And today, Finchette can do all of those things, but not all at once. So if it could do all of them at once now it’s actually done my job for me instead of been a tool to do my job. Do you know what I mean? Like right now, it’s a really great tool to do my job. But I really want it to do my job, especially if it’s something that doesn’t add value to my business, or I could use that time to go get new clients, go to a conference and get my name out there.

[00:25:55] Braden Dennis: If I’m an investment advisor, meet with my go have lunch with them instead. Things that are actually going to move the needle for your business instead of ah, it’s going to take my job. It’s ah, it’s going to take all the stuff you don’t want to do in your job first. Let’s start with those first.

[00:26:10] Kyle Grieve: So let’s look at the mixing of quantitative and qualitative analysis. What’s the best way that long-term fundamental focus investors can utilize technology and AI to help them become better long-term investors? 

[00:26:22] Braden Dennis: Let’s look at an example I was doing today, which is the company Uber. Uber is a company that we all know well.

[00:26:33] Braden Dennis: Uber is a company that probably is in the app, is probably on the home screen of your phone, and it is a company that for the first maybe two years of it being publicly traded and giving the S-ONE, that initial filing a real shot in trying to understand it. I thought to myself, this is a terrible business.

[00:26:58] Braden Dennis: This is a venture capital phenomenon. This is a zero interest rate phenomenon. How on earth is this thing losing $5 billion a quarter at this scale? Like at what level of scale does this work? You know what I mean? That was my initial thought. A superpower for an investor is to be able to change your mind when the facts change.

[00:27:21] Braden Dennis: That is the number one most important trait in my mind to investors, both on the companies you own and the companies you don’t own, is to be able to change your mind when presented new facts. And since then, Uber’s competition has mostly died since then. Their take rates have gone from mid teens, slow, low teens.

[00:27:48] Braden Dennis: To high 20% without a blink in growth, and that is material that is absolutely material. If I triple my, the amount of money I’m taking in this transaction, Kyle and you start using my service more, there’s something very valuable to the service I’m offering and something very valuable to the mo. And so I think that this is a perfect example of the data we have and how I’m able to kind of graph it.

[00:28:17] Braden Dennis: So I, I graph total trips on the platform, which in the lows of Covid went from 737 million in the June quarter to 2.5 billion in the most recent September quarter, while the take rate went from, mid teens to 27.5% during that time. And for me as an investor, a fundamental investor, I scratch my head and go something’s changed massively about this business.

[00:28:43] Braden Dennis: It’s actually spinning off real cash. I told myself I’d never touch it with a ten-foot pole. It’s at the top of my watch list today. Kyle, like it is it’s maybe one of top three names on the podium at any time right now. And so I think that’s a kind of perfect example of something. I was just using it for 20 minutes before recording this conversation as a really useful example.

[00:29:05] Kyle Grieve: So I like how you use quantitative metrics to start the investing analysis process. In a recent conversation you had on the Millennial Investing podcast, you spoke about the importance of a growing business. This is aligned with what I also look for in a good investment. My question is, what specific benchmarks are you looking for in specific quantitative metrics?

[00:29:23] Braden Dennis: I always find this interesting when investors really try to complicate things, and I always say, well, this stocks you on the, they’re growing so fast. It’s what do you like companies that don’t grow? Like it’s fascinating to me. I think this goes back to the Warren Buffett quote about being a businessman and being an investor is, I couldn’t dare own, want to own.

[00:29:49] Braden Dennis: Privately a company that’s declining or like what is a cigarette, but you’re, you’re just trying to get a few last puffs out of it. I couldn’t imagine wanting to own that privately, publicly. I have so many options. There are what? fifty-seven thousand active global listings today. No one’s holding a gun to my head and saying I have to own crummy businesses.

[00:30:13] Braden Dennis: Once some of the best in the world happened to be publicly traded. Let’s just reverse engineer this. Return decomposition comes from free cash flow per share growth. And so if I know that’s probably a pretty good place to start, and it’s not so much that I own growthy names. I own a few, but more of them look like Visa than Tesla.

[00:30:36] Braden Dennis: Visa is not a growth stock by any means. But it has a wide moat. It’s a wide moat that I understand well. They have sustained growth in the double digits, long runways of growth to disrupt cash in emerging markets, world-class margins, and return on invested capital. So more of the companies I own look more like Visa than Tesla.

[00:31:00] Braden Dennis: When it comes to growthy, like I don’t think that they’re too growthy or too Mimi, but they certainly are growing. And if they weren’t, then I frankly don’t want to own equity. 

[00:31:10] Kyle Grieve: So you’ve stated that you currently don’t own CrowdStrike, but that it might be a business that you add your portfolio due to its growing EBITDA margins, growing recurring revenue and impressive revenue growth rates.

[00:31:21] Kyle Grieve: Now, while revenue growth is impressive, it does seem to be dropping each year. How do you factor in these decreasing revenue growth rates as part of your analysis of this business? 

[00:31:30] Braden Dennis: CrowdStrike, CloudFlare. This is a long list of companies I keep on a watch list and dashboard of being in the tech space, knowing how important they’ve become, knowing how amazing their product is, knowing that they have a lot of pricing power built in.

[00:31:50] Braden Dennis: Probably under earning CloudFlare for sure, under earning. I look at these names and I think they’re pretty amazing. The growth is solid. Investors have done extremely well owning them, but if 2021 taught us anything, you gotta learn something from 2021. 2021 taught us anything. You can’t just pay any price.

[00:32:14] Braden Dennis: There is no enterprise in the world that is worth infinite money. And so if I know that and I reverse engineer that, I have to be disciplined. For those two names. In CrowdStrike in particular, I think I was tweeting. I was like, I might just YOLO it and buy a share. At this point, like the annual recurring revenue growth is fantastic.

[00:32:34] Braden Dennis: The product’s amazing, 140% dollar-based net retention rates. So you know, their current customers are spending like 40% more than their previous year without even gaining any new customers. Just world-class type numbers, but never gotten point where I think I understand.

[00:32:53] Braden Dennis: Be able to go do even a five-minute presentation on why they’re better than their competitors. I’ve never been able to tell anyone what the product does beyond very basic understanding of it. So I’m just not in a position to own the stock, and it’s not that I’m never going to be in a position to own the stock.

[00:33:16] Braden Dennis: I want to learn more about this company, I want to learn a lot about a lot of companies. I think that’s just kind of my infinite curiosity. But until I am in a position where I understand the company extremely well. No called strikes in investing, right? Like you don’t get killed by it sitting on your watch list, you get killed by the stock getting crushed, and you make a bad decision because you don’t know what they do, let alone how they’re going to sustain a competitive advantage.

[00:33:44] Kyle Grieve: So you brought a really good point there about, not being able to just even like a five minute presentation on what this business does. And I really like that as a, as a, at least a stepping stool to understanding a business. But there’s also something to be said that, when you actually own equity in a business, it kind of forces you to better understand a business.

[00:34:01] Kyle Grieve: So how do you like to balance those two? Do you need to know 100% of your target amount of knowledge before you ever buy a business? Or are you willing to make a starter position and then build up that that knowledge base over time? 

[00:34:14] Braden Dennis: Look, I’m going to ruffle some feathers here. I think starter positions and incentive to learn more about the business.

[00:34:21] Braden Dennis: I’ll buy a small position here and then I’ll figure it out later. I’ll figure out what the company does later. That’s not investing to me. That’s my opinion. Of course, many people do it. It works for a lot of people. I never try to knock on anyone for their investing style. I think that’s both immature and irrational.

[00:34:39] Braden Dennis: However, for me, it doesn’t make sense to me. It doesn’t make sense if my capital is at risk. I actually only define my capital being an immense risk by, I don’t really know the company well enough to be a shareholder, and so what’s the point of being half in? I think that it does a couple of weird things portfolio allocation wise too.

[00:35:03] Braden Dennis: You end up with a bunch of companies, you end up with shiny object syndrome with all these companies. Kyle, if I ever post, if I ever share my portfolio and there’s more than thirty-five names you grab me. You go to my brokerage account and we go together and we sell all of them and own a diversified low-cost basket of stocks like the S&P 500 if that ever happens.

[00:35:26] Braden Dennis: You promise me that is exactly what we will do because I just don’t think that’s the way that makes sense.

[00:35:36] Braden Dennis: All right. I make that promise to you. 

[00:35:39] Kyle Grieve: So I was browsing your 20 stocks that you own on X and I liked what I saw. One observation was that you have a good mix of market caps in your portfolio, ranging from small caps to mega caps. What adjustments do you make to your analytical process based on the growth stage of your stocks?

[00:35:54] Braden Dennis: Yeah, well thanks for saying that. And that tweet got tons of engagement. because you know, people always want to know what people actually own. What’s the portfolio behind the profile picture? And it’s 19 individual names today. But that is a bit misleading because if you look at the spin-offs that have generated, I don’t sell any of those.

[00:36:16] Braden Dennis: There’s multiple kind of duplicates in the tickers. So it’s actually really around like 13 individual companies, and that’s kind of like a materially different amount of concentration that. When it comes to how I think about small caps versus large caps versus thinking about the growth stage versus mature stage, I don’t really think about it that much.

[00:36:39] Braden Dennis: If a company happens to be a 6 billion in market cap, I don’t look at it as a different investment thesis than if it was 600 billion in market cap. And you can certainly make the argument that the room, the ceiling for upside is much better for a company. I’d only 6 billion in market cap, but if I’m trying to compound my money, not lose money and do this for a really long time, both ideas can work really well.

[00:37:08] Braden Dennis: Both ideas can work exceptionally well. And it’s something I think about, but it’s not like the be all, end all. I’m not going to put myself in a box and say, I only own things over 10 billion in market cap, or I only own micro caps under 500 million because that’s where there’s going to be the most opportunity.

[00:37:27] Braden Dennis: I want to limit the amount of companies I’m looking at by quality instead of a screening metric. And if a screening metric helps me layer down what that quality is like I, I know I’m going to want to buy companies that are growing free cash flow per share. Maybe that’s a good place to start. But I want to start with my universe of this is the 150, this is the a hundred greatest companies on earth.

[00:37:53] Braden Dennis: Let’s go from there. That’s how I like to think about investing and how I feel confident owning something for 10 years. Because when something trades sideways for five, six years, it is not fun, like at all. Like it’s almost worse than it trading down. That’s just the worst. It’s terrible.

[00:38:13] Braden Dennis: And, but if I know that company really well and I know it’s going to continue to compound and I feel good about owning it, then I’m going to have. 

[00:38:21] Kyle Grieve: So you brought up, An interesting point right there about inefficiencies in the market. So I’m interested in knowing where do you think the most inefficiencies are today in the market?

[00:38:31] Braden Dennis: After saying all that, I. It is very clear that small cap stocks are at historically low multiples compared to large caps. There’s never been a dis, a larger discrepancy. It’s not so much that small caps are so beat up and mid caps are so beat up. It’s that large caps have done so so well. The Magnificent Seven make up the magnificent seven make up like 30% of the market cap weighted.

[00:38:57] Braden Dennis: Year to date, if you remove those top seven companies, the S&P did four or 5% year to date. If you include them. It did like high twenties. It’s a gigantic disparity. That being said, you have to wonder to yourself is are those companies a lot interiorly better? Are they so intertwined? I think both of us are staring at a collection of suite of Google, Microsoft, and Apple products right now.

[00:39:24] Braden Dennis: I know I am. I think you probably are too. Both software and hardware, the margin profile is exceptional. They’re going to produce a few hundred billion in free cashflow. Those are not just numbers we just kind of throw around. And so when comes to opportunities, there’s always opportunities. If your time horizon is long enough, right?

[00:39:48] Braden Dennis: If you were to ask me what’s a stock that I think is going to go up this month? I’d say, I don’t have an answer for you. That’s not an answer that I can possibly give you with any degree of confidence. And if anyone can run away, it’s not good advice. If you have a time horizon, long enough listeners of this podcast, then your opportunities now.

[00:40:13] Braden Dennis: Look back, stocks have climbed the wall of worry for over a hundred years and we’re now at all time highs. Despite all the worries. The only thing that is consistent in this world, in a guide to things that never change to steal. Morgan Housel’s New book title. Worry never stops. It is never going to stop.

[00:40:34] Braden Dennis: And it, there’s never going to be a world where you go, everything’s great. It’s time to put some money to work in the market. That doesn’t happen. It won’t happen. So what do you do? You deploy capital and you invest it for a long time. 

[00:40:45] Kyle Grieve: So I think you can learn a lot about someone’s investing philosophy by asking two questions.

[00:40:50] Kyle Grieve: One, what’s the most concentrated position in your portfolio, and two, what’s the longest time period you’ve held onto a stock? So I’d like to pose those two questions to you. 

[00:40:59] Braden Dennis: How well do you know my portfolio? because this might be a shocking answer for for many people, constellation software is roughly half so anywhere between half and fifty-five percent of the portfolio.

[00:41:11] Braden Dennis: If you include the SPINS and the mothership company, this is ticker CSU. On the Toronto stock Exchange, you’re talking about inefficiencies and opportunities. I think outside of US markets you have less eyeballs left. Less analysts. Funds are arbitrarily constrained. And I think you can find really good opportunity.

[00:41:29] Braden Dennis: Generally, constellation Software is a giant conglomerate of niche vertical market software companies headed up by Mark Leonard. And so when someone says, how do you feel comfortable with fifty-five percent of your portfolio being in one stock? And I go, one didn’t start that big. It certainly did not start that big.

[00:41:53] Braden Dennis: Look at the stock chart and you’ll understand what I’m talking about. Two, if a handful of the companies they own go to zero, I probably won’t even notice as a shareholder one because they’re 950 companies strong as of the latest quarter, I think based on estimates deploying capital into new companies at all-time highs, deploying capital into at all-time highs in terms of the number of companies and the size of companies.

[00:42:21] Braden Dennis: That, that’s a really important metric for a serial acquirer of niche vertical market software companies like Constellation. And I don’t have any plans to sell a single share unless something changes because you never want to just say, never is a long time. Right?

[00:42:35] Braden Dennis: If I was to say I’m never going to buy a share of Uber when I read their s. And now here I am thinking about, wow, this is actually impossible to replicate because of those reasons that I thought it was a terrible business. Then you’re onto something there, right? Never is a long time.

[00:42:50] Kyle Grieve: And is CSU also the longest tenured stock in your portfolio? 

[00:42:55] Braden Dennis: I’m looking at the names here. It’s certainly one of them. I’d have to look back on my brokerage, but I’ll give you a couple names that I’ve owned for closest to 10 years. I’ve been investing for 10 years. I bought a low-cost index ETF shortly after my 18th birthday, turning twenty-nine this year.

[00:43:13] Braden Dennis: So it gives you an idea of how long I’ve owned Constellation for a long time. I’ve owned WSP Global and Engineering Roll-up for a really long time. I’ve owned Autodesk, the architecture, engineering and consulting construction software company for a really long time. Those are a few names that come to mind.

[00:43:32] Braden Dennis: Visa and MasterCard. Owned in size for a really long time. These are what I call core positions. It’s if I was to sell everything else off and I would, I’d feel just fine owning these at night. 

[00:43:44] Kyle Grieve: So a question I often ask myself is, what’s the best business out there that I don’t own today that I will probably regret in the future?

[00:43:51] Kyle Grieve: It helps me look at opportunity costs of what I currently own, and highlights any risk associated with owning it at current prices. So I want to pose this question to you. What do you not own now that you think you should, aside from CrowdStrike and what’s holding you back from owning it? 

[00:44:05] Braden Dennis: Oh, it’s easy answer.

[00:44:06] Braden Dennis: It’s Costco. I don’t even have to think about it. Why? I like the idea. Well, the company is obviously fantastic. The membership model was brilliant. The metrics around that are brilliant. Efficiency is brilliant. Basically no working capital because the, the inventory turns are so high. The customers basically finance all of the working capital.

[00:44:33] Braden Dennis: There is a actual network effect. There is a flywheel with the membership. There is a compounding of the quality of what they serve their customers as they have more customers, prices get lower prices bring more customers, and then the loop continues. Now they have more customers and lower prices.

[00:44:52] Braden Dennis: You have this never-ending kind of amazing feedback loop that has created a phenomenal business. They have flipped the idea of stakeholders on its head. Wall Street and most public companies act in the interest of shareholders. First. Costco flipped that on its head. They said, we’re going to treat customers and employees, the other two stakeholders in this three-legged stool with utmost priority.

[00:45:17] Braden Dennis: As a result, shareholders will get handsomely rewarded, and that has been true times a million. Why? I don’t own it. The answer is I can’t wrap my head around paying basically 40 times earnings. A company growing high single digits on the bottom line, top line, it’s Undisputably probably one of the greatest business of all time.

[00:45:45] Braden Dennis: It is arguably the most defensible business of all time. It is going to be around when I’m on my deathbed. I can say that with complete confidence. And so that’s probably why I’ll regret not buying it today, is because if those things are true, and in 40 years from now, Costco stock is not a lot higher than it is today, I will be very surprised.

[00:46:12] Braden Dennis: But I have rules around what price I’m willing to pay, and sometimes that’s just as simple as a valuation that I cannot compute as making any resemblances of sense. The problem with Costco today, in my opinion, of the thesis of the stock, and trust me, I’ll be wrong on this and that’s why I should own it.

[00:46:33] Braden Dennis: The problem with it is they only open around eight to 12 to 14 new stores a year, and that number has been very steady to justify the growing market cap and to justify the. Multiple on the stock. There needs to be some sort of acceleration, and I get why they’re very deliberate about store openings and grow slow.

[00:47:01] Braden Dennis: But if they just, accelerated the pace, just like Constellation and Mark Leonard are accelerating the pace of the point capital to justify the growing multiple and the growing market cap, then you can actually make a case of market beating returns. Of course, just as you laid out in the question there.

[00:47:20] Braden Dennis: I’m probably going to regret not owning it, and I probably should smarten up and own one of the greatest enterprises the world’s ever seen. 

[00:47:27] Kyle Grieve: Yeah, I completely agree with you on that pick. That’s a really good one. Braden, I just want to say thank you so much for joining me today. This was an awesome conversation.

[00:47:34] Kyle Grieve: Before we say goodbye, where can the audience connect with you and learn more about FinChat? 

[00:47:40] Braden Dennis: Finchat is at finchat.io. It is a complete investment research terminal and AI product for fundamental investors. And I am on a weekly podcast called The Canadian Investor. And for those in Canada, there’s lots of content for you, but you’ll be pleasantly surprised if you’re not in Canada that about 90% of the conversation is about US stocks.

[00:48:03] Braden Dennis: That is a weekly podcast that The Canadian Investor, you could find it anywhere on your podcast player. 

[00:48:08] Kyle Grieve: Okay, folks, that’s it for today’s episode. I hope you enjoyed the show, and I’ll see you back here very soon. 

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