Rate rises, growth stocks & Ren’s monopoly thesis

Bryce: [00:00:53] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing, whether you're an absolute beginner or approaching Warren Buffett status. Our aim is to help break down your barriers from beginning to dividend. My name is Bryce, and as always, I am joined by my equity buddy Ren. How are you going? 

Alec: [00:01:09] I'm very good. Bryce very excited for this episode. We are living through a very strange times in markets. Yes, inflation's high. Unemployment's low. Properties are up. Stocks are down. Interest rates are up. The world is upside down. It's an incredibly volatile time. There's so much happening and it feels like it's been a little while since we've just spoken about what's going on. 

Bryce: [00:01:35] Yeah. Well, that's how we're going to start this episode with a bit of an update on current market conditions. What we're saying at the time of recording the Fed has just announced their position on interest rates, and in the second half of this episode, Ren, we're going to hear an investment thesis from you that revolves around companies at the big end of town. 

Alec: [00:01:55] Yeah. One. Not a not a fully formed faces. Sure. Yeah. 

Bryce: [00:01:59] Well, an idea.

Alec: [00:02:01] Yeah, yeah. Yeah, I've been workshopping. 

Bryce: [00:02:04] Well, I'm looking forward to that. But let's start at the very top bit of housekeeping. If you haven't seen already, we have launched Fin Fest. It is Australia's biggest finance festival, its save the date 15th of October 2022 in Sydney, and we are inviting you to join us to come and trade ideas with flipping finance festivals. Well, this is the first finance festival was where flipping finance events on its head and creating something that we hope will be engaging, empowering and really exciting. So head to Equity Mates dot com slash fin fest to register your interest so you don't miss out the opportunity for early bird tickets and all the information that'll come along with it. 

Alec: [00:02:46] Yeah, we can't wait. But Bryce let's talk about what's happening in markets today because Fin first is six months away, and right now a week in markets feels like a long time. So who knows what the market's going to be like? But by the time June 1st rolls around? Yes, we hit a bear market. 

Bryce: [00:03:03] We have hit a bear market. 

Alec: [00:03:04] Yeah, so the Nasdaq, everyone's favourite tech market, was officially down 20 percent. 

Bryce: [00:03:12] That was earlier this week, and it's subsequently bounced a bit. But yeah, we hit a bear, which the difference between a correction and a bear correction 10 percent and a bear market is down 20 percent. It has jumped up a little, but we haven't seen that for quite a while.

Alec: [00:03:27] No, and we spoke about how a lot of the smaller growth stocks had fallen off. You know, the Spotify, as the Shopify is the second tier companies, the Big Tech names have really been hit. Yeah, Facebook, obviously we've spoken about a bit, but Netflix down 50 percent. Wow. 

Bryce: [00:03:47] Yeah, it's interesting times. No, no surprise that the Nasdaq has hit bear market. We haven't seen a bear market on the S&P 500, and the ASX is actually holding up pretty well, given that the majority of the top end of town on the ASX is your mining and your banks. They're not being impacted anywhere near as much as some of those growth in tech names that we're seeing over in the state. So if you have diversified your portfolio pretty well, if you're not long just tech, then you might not be feeling it as about as some of those growth guys. 

Alec: [00:04:19] Yeah, yeah. So the ASX hit a correction 10 percent. Yeah. And so did the UK. But yeah, not not as bad as those tech names. Who knows where it will go from here, but it's volatile times. 

Bryce: [00:04:35] It is. It is. If you didn't have the chance to listen to our interview with Tim Samay last week, he's a growth fund manager and it was a great insight into how he's currently thinking about the market and the opportunities that there might be in a in a correction like this. So some other news Ren at the time of recording, we've just woken up and the Fed have come out at the Federal Reserve over in the states and have raised interest rates for the first time since 2018 by 25 basis points or a quarter of one percent. This wasn't new news. It was anticipated the market was expecting it. But I think what was interesting was that they had forecast or let the market know that there's a lot more coming. 

Alec: [00:05:17] Yeah, a lot more. Six more rate rises this year. Yeah, and there's not that many more months in the, you 

Bryce: [00:05:22] know, I think six more this year. And then they've pencilled another three in 2023. 

Alec: [00:05:27] Yeah, okay. So yeah, I mean, one thing that they often say is that the risk is increasing rates too quickly. 

Bryce: [00:05:35] Okay. And what is what is the what is the risk there? 

Alec: [00:05:37] Well, the the in raising the rates too much, too quickly, it causes like an overreaction in the markets. Yeah. And six feels like a lot. 

Bryce: [00:05:49] It does feel like a lot. You know, you can really. Push an economy into recession if you if you raise too quickly. But the reason that they have raised surging inflation over in the US. Prices have increased by 7.9 per cent in a year through to February, so it's the highest inflation we've seen in four decades and 40 years. Yeah, so pretty significant inflation, incredibly tight labour market as well. Unemployment low. So there's a really interesting mix of macro economic conditions that are going on. 

Alec: [00:06:16] Yeah, it's obviously the biggest story at the moment inflation. You know, we're all saying oil prices at the petrol tank. And that has a flow on effect to everything. So, you know, even with these increased interest rates, just commodity prices, oil prices remaining high, which will mean that those inflationary pressures in the economy. But the Fed is doing its best to head that off. Now you said that raising rates too quickly threatens to put a country into recession. CNBC had fed survey, which gauges the opinion of fund managers, strategists and economists. They put the probability of a recession in the US at a third, 33 percent in the next 12 months. That's up 10 percentage points from last month's survey. Okay, so a third, I guess, of fund managers and people on Wall Street think that what drew a recession in the US? Interestingly, that same survey puts the chances of a recession in Europe at 50 percent. Yeah, well, so the stock markets are down 10 percent. The Nasdaq's down 20 percent. But we might not be at the end of it. There was some data that came out on Twitter that so this year has been the fourth worst start to a year since, like since they started recording data in the stock market over in the States. But apparently, when the market starts terribly like it ends the year quite strongly epic. But yeah, I don't know. It just it feels like it's volatile times. Yeah, well, it is. It is 

Bryce: [00:07:56] volatile time. Yeah, it's an interesting one to think about the impact of obviously what's going on with the terrible situation over in Ukraine and should the, you know, the price of energy going into winter over there? I think they're just coming out of winter, actually. But yeah, that that that cost of energy over there is certainly one to watch. 

Alec: [00:08:16] Well, that leads nicely on to the next thing that's going on in markets as worth touching on, which is the price of oil because it's actually pulled back massively higher. Yeah. And that's really hurt my ASX share market game strategy. Me too. 

Bryce: [00:08:32] Yeah, we went into this knowing that we would have to really keep across a strategy that is central around the oil price. Well, but you and I have both not looked at it on 

Alec: [00:08:42] my iPhone home screen. I had the ASX 200 index, the S&P 500 index and bitcoin to us as like little numbers that I could check. And due to start the ASX share market game, I took the S&P ASX out and put West Texas Intermediate and Brent crude just so I could say the price of oil. And it was great. The first couple of days it went from about $100 a barrel to about 135 dollars a barrel. And so I was like, I'm doing well in the sharemarket came I was up and then had the fastest pullback in a day. I think Brent fell like 13 percent and I didn't sell Anton well. It fell overnight. And then that is just an opening. Yeah. 

Bryce: [00:09:27] Well, this is the this is the issue. You can't give. We've got to be ahead of the game. It's too late to. We've we've missed it. 

Alec: [00:09:33] Well, I sold. Oh, you're out. Well, it's gone. It's gone further down. So oil is now trading in the mid 90s. Yeah, yeah. Yeah. I was listening to a podcast and saying it was the fastest pullback from a 52 week high in oil's history. And it's just it's astounding to me how quickly the market moves and how quickly narratives change. Basically, all that was required for that price run up in oil to stop was for OPEC to come out and say we could produce more. We'll go. We sold us, but we saw it it, and then it pulls back so quickly. It is just amazing how quickly everything moves in markets these days. And I just like, you can't be a day trader unless unless you just want to force a 

Bryce: [00:10:20] vote on it and just super laser focussed on like one thing. Yeah, yeah, yeah. Good luck. Trying to keep across all commodity prices and day trading that stuff, 

Alec: [00:10:28] you'll have a headline like Meh if you try and chase 

Bryce: [00:10:30] you down on that. Yeah, right? Well, I definitely need to get back in and log into my ASX share market game because I feel I'm going to be getting absolutely pumped. So if you are joining the ASX game, thank you for joining the league. We have a couple of hundred people in there now, which is great. If you do want to join or put some information in the show notes it's free to play. You get 50000. And Dollars, so come join us. 

Alec: [00:10:52] $50000. Five Money, yeah, 

Bryce: [00:10:54] 5000 fake money, 50000 real would be nice. So let's keep moving Ren there's plenty to cover. There's an interesting trend happening now with tech companies that have iPod and where they're sitting versus their valuation. 

Alec: [00:11:08] Oh yeah, I mean, this isn't new news that recently IPO tech companies are down. No, we all know that the growth story, and especially the tech growth story, is that a lot of these companies are being cut in half or further. But this is an interesting one because there's been an interesting dynamic the last couple of years, whether or not the last couple of months where the these tech companies unprofitable fast-growing tech companies on the stock market have been cut in half or more. But private markets like the venture capital market there hasn't been as big a haircut, like they're still crazy rounds being raised and it's still money sloshing around, which is interesting because these companies eventually have to exit or IPO and then the valuation they're going to get when the IPO is lower, you'd think that that would have a flow on effect to, they say, around. Yeah. But what we're saying is we're almost at a record of tech companies that went public trading below their IPO price, but below their last private round price. So the last price they raised venture capital at, you know, before becoming a public company, which means that those venture capitalists would be down not just from where the company IPO. But from when they put money into the company. Yeah, in a venture capital round. So 32 percent of tech IPOs are trading below the last private valuation at the moment. Oh yeah. And we can think of those companies like we know who they are. It's the, you know, the Robinhood's of the world, the recently IPO companies. Yeah, yeah. Yeah. Well, recently SPAC companies, a lot of them. Yeah. 

Bryce: [00:12:48] Well, there's also some data coming out that over the last couple of months with market volatility, a lot of companies now pulled out of the IPO process. And so it's not a time I think you'd want to be hitting the market's

Alec: [00:12:59] first two weeks since. In the US, first two weeks period without an IPO since like twenty nine. 

Bryce: [00:13:04] Oh wow. Yeah, there you go.

Alec: [00:13:05] So yeah, it's an interesting one. You'd expect looking at that data that we see private market start to worry about valuations a little bit more. But who knows with these markets? 

Bryce: [00:13:17] Yeah. Well, if you follow Scottie, go away Callaway. As closely as I enjoy following him, he feels that we're about to go into a big period of down rounds in the private markets.

Alec: [00:13:29] Okay. Yeah. 

Bryce: [00:13:30] Yeah, that's not good for those. Isn't there some early stage start-ups looking to raise some capital? 

Alec: [00:13:35] There's a meme and you don't. You've told me that you don't get meme, so you've told me that there's 

Bryce: [00:13:42] a podcast in explaining 

Alec: [00:13:43] necessary. There definitely is. You know, how is everyone says you should just short whatever Jim Cramer, you should go. Whatever Jim Cramer opposite again, Cramer recommends. I'm pretty sure this is the same thing about Scott Galloway. I was he sox. This is worse than my stock of the year. 

Bryce: [00:14:00] Well, I mean, he's been he's been hounding Tesla in every year. Yeah, every of his bold 

Alec: [00:14:04] predictions, every single day. 

Bryce: [00:14:08] I think this is the first year that he acknowledged he was wrong, but it like, we're five years, we're five. You, you're five years too late. 

Alec: [00:14:14] Yeah, yeah, yeah. Yeah, I like to acknowledge he's wrong. I think Jim Cramer just kept yelling things going, Yeah, to other things. I don't know if there's a lot we've got to say on them, but did you say what happened with the nickel markets over in London? 

Bryce: [00:14:28] Massive short squeeze. 

Alec: [00:14:29] Massive short squeeze. Yeah. So for those that Mr. Nickel was traded at the London Metals Exchange and it was trading for about twenty five thousand dollars a ton, and then it just skyrocketed. And then within like twenty four hours went up 250 percent more to close to 100000 dollars a ton. And the biggest nickel producer in the world is big. Chinese company was on the hook for like eight billion dollars and they had to shut the exchange down. And then there was all this shady stuff about the London Metals Exchange actually cancelling trades, and all these traders are up in arms. And then there's like, well, J.P. Morgan, apparently one of their clients, had a big position and there's all this stuff going on, which we don't know enough about. But the interesting thing for me is everyone a couple of a year ago was talking about GameStop and talking about how unprecedented this short squeeze was for GameStop. But this is a good reminder that short squeezes happen. They have happened before they will happen again. It's just GameStop was amazing because people like you and I like retail investors with a laptop did it. But you know, this is an example of just professional investors. 

Bryce: [00:15:43] Yeah, yeah, that's fascinating. So speaking of short squeezes and meme stocks, Ren. Fascinating story coming earlier this week was AMC and their pivot into buying a gold mine. 

Alec: [00:15:58] It was unbelievable. Not a Fool gold mine. 22 percent of high croft mining listed on the Nasdaq H. Y.M.C.A., a gold and maybe silver, but a gold miner in northern Nevada. AMC is America's largest theatre chain. It's got about like a thousand cinemas. It's a surprising move. Surprising, but 

Bryce: [00:16:22] also like what? 

Alec: [00:16:24] But also, I'm pretty sure the AMC CEO when justifying it was like we've had an amazing year at the box office with Batman and some other big titles, so we've invested 

Bryce: [00:16:36] splurge on a gold mine. What on Earth? This is crazy times, crazy times, but 

Alec: [00:16:43] it's also worth pointing out. So AMC has obviously had cinemas shut down the last couple of years because of COVID, and so they weren't profitable in 2020 or 2021, and that's extremely forgivable given the industry they're in. They weren't profitable in 2019 either or 2017, for that matter. They were in 2018. But it's not like this company is just printing money, and they're like, What else can we invest in? Like even pre-pandemic cinemas, we're in a world of hurt. 

Bryce: [00:17:13] Well, they were on the way out. Yeah. Well, in some instances, but something dodgy is going on. I'm calling it my sniff test doesn't pub test. 

Alec: [00:17:22] So my theory is just this company wants to lean into being a meme stock, I reckon. And so there was a short squeeze. And then, you know, there was all this AMC to the Moon stuff on like Instagram and Reddit and Tik-tok. But since then, the price has come off a bit, and in that time, here's some of the things that AMC have done. They've speculated that they're going to create their own cryptocurrency. They've announced that they're accepting Dogecoin and Shiba aner payments. They created NFTs for their shareholders, and I own AMC NFT, and now they've bought a gold mine. It feels like it feels like they're trying to cling on to that meme stock reputation. 

Bryce: [00:18:07] Yeah, but like, is it resulting in in any sort of shareholder return? What's the share price doing? 

Alec: [00:18:13] So the share price is obviously down from its peak when the short squeeze happened, down three quarters. But interestingly enough, it's about double where it was when the pandemic started. Yeah, right. So in that sense, you would probably say they're doing alright. Yeah. I just it's just not long term. It feels like a joke. It feels like a sugar hit of capital management. Yeah. Getting the headlines for a few days. Get on WallStreetBets the few tik-tok mind about you. 

Bryce: [00:18:44] Yeah. See you later. 

Alec: [00:18:45] But like, figure out the cinema business. 

Bryce: [00:18:48] Figure out the cinema business. Stop trying to be a name stock. It's as a shareholder. You just have to be questioning what is the actual strategy of this business here? One to watch? Not one for me. That's for sure. No one for me. No. Ren. Before we move on, though, and take a take a break to hear from our sponsors. The other update, of course, that we can't go past is the AFL footy season has started, so that's really exciting news for us here at Equity Mates. Sure, you didn't seem excited. 

Alec: [00:19:14] I'm just interested to know where this is going. 

Bryce: [00:19:16] It's not going anywhere. We were talking about market updates and we kicked off the AFL season last night with the with the Demons getting a win, and we did 

Alec: [00:19:25] my first of many incorrect tips for the season 

Bryce: [00:19:28] on here. No, but anyway, let's take a quick break. And then after this, we're going to dig into your thesis around companies that are sitting potentially pretty at the top of their industry. So Ren, we've been talking in the office over the last few days about this sort of investment thesis that your form formulating and having a think about, and it revolves around some of the large companies that dominate their fields or their industries and how they go about mergers and acquisitions. 

Alec: [00:20:02] Yeah. And this all really started with a lot of the focus on tech monopolies, and I'm going to use monopolies shorthand here, but it doesn't actually have to be the only white monopoly. I mean, you could also call like oligopolies, but just like the big companies at the top of industries, and there's been a lot of focus on the tech versions of that and some of the things they've done, you know, Facebook buying WhatsApp and Instagram is probably the most discussed, but also Google buying DoubleClick and Android. Just so many companies, Apple and Amazon have come in for a lot of criticism around their uses of data and like potential competitor data through the App Store through Amazon third party to then replicate products and services. There's been a lot of focus on tech, and there's been a lot of action in response to this focus on tech. The FTC in the U.S. has sued twice to break up Facebook 

Bryce: [00:20:58] Federal Trade Commission 

Alec: [00:20:59] Federal Trade Commission. All 50 U.S. states have banded together to investigate Google and have sued the search giant around their use of their market power and digital advertising. And then there's there's like five different antitrust break up, Big Tech control, Big Tech bills moving through different parts of the U.S. Congress at the moment as well. So, so much focus on tech monopolies. But there are plenty of other monopolies or plenty of other big companies that exist that just don't get any attention. And so I've been thinking a lot about them and in particular, just how consolidated a lot of global industries or American industries have gone over the last few decades. And we see so many sectors that are just dominated by like two or three big companies and we'll go through some of them. But like we can think of a lot of a lot of the names, you know, like the Woolworths Coles. Sure. But you know, like like health care and stuff is dominated by like Pfizer, Johnson and Johnson, like a few big names like food and consumer staples, is dominated by Nestlé, PepsiCo, some again, some of those big names. And so I came across this chart that I think tells a really interesting story and ties in with like these big companies. And it's really hard to describe a chart on a podcast, but I do my best and I think we will release this chart the day this episode gets released on Instagram show. So if people don't like the description, they can pull out their phone and check Instagram and read along. But basically, it looks at how companies have been exiting, going back to like sort of 1985. And what we see is that the 1980s and 1990s companies would IPO, and over the last 20 years there has been an explosion in the number of companies exiting. So start ups really like Start-Up founders realising an exit like getting paid either through an IPO or being bought. There has been an absolute explosion. The raw numbers sort of go from 200 on average in like the 90s 

Bryce: [00:23:19] to companies per year 

Alec: [00:23:21] companies per year existing to in the thousands in the 2010s. But the number of IPOs in that time have declined meaningfully. And what we've seen is just an explosion in the number of companies being acquired. Mm-Hmm. Mm-Hmm. And that's not particularly surprising, and we know that a lot of that is that a lot of that is tech companies, but it's also all these other companies. And so the thesis that I've been sort of playing around with in my mind is there merit in finding the biggest companies with the strongest balance sheets at the top of their industries? That's rather than where 20 years ago, they may have been slow growing at risk of disruption. Now they are just acquiring any potential competitor. Any potential disruptor. And any like new innovation that they want to tap into that their business,

Bryce: [00:24:21] I don't know, is there? Do you have an answer? 

Alec: [00:24:23] Well, this is I mean, 

Bryce: [00:24:26] so first, I like it. First thing that would come to mind is you've mentioned all of the, I guess, issues, potential issues and actions that are facing the tech guys. This is a good question. Is that flowing through to the other examples you spoke about, Johnson? And Johnson, the Nestlé to they face the same sort of level of competition scrutiny and that these other guys are. 

Alec: [00:24:52] Yeah, at this stage, no. OK. And there's like the Biden administration has made a bit of noise about, you know, consolidation in airline travel being bad for airline passengers and stuff like that. But the political consensus the political will doesn't seem to be there in the same way. 

Bryce: [00:25:10] But one more question, I think before we jump into some examples of how these big companies are acquiring is by just acquiring such vast amounts of companies and sitting at the top and essentially scooping up disruption to either a just stop it beating them or b just buy it rather than build it. Has it proven to be a good return on shareholder capital?

Alec: [00:25:37] Well, yeah, it's a good question. So I've got some numbers from some of these big companies. Those are my two and tens. Yeah. All right. Well, let's start with, are these big companies actually going out and buying all their potential competitors that would previously have iPod and competed against them? And if we look at the tech companies, we've found a bunch of data about the number of acquisitions. So Google has acquired 222 companies, including 29 in the past five years. Facebook has acquired 83, including 19 in the past five years, Apple 107 companies, 30 in the past five years, and Amazon has acquired 74 companies, including 22 in the past five years. Wow. So when we talk about this explosion of companies being acquired rather than IPO, there's no doubt that the Big Tech names have been contributing to that. But if you look outside of Big Tech, the numbers aren't as big, but it is that it is still playing out. So John Deere Deer and co. dominate like the agricultural equipment space. They've acquired 22 companies, including 12 in the past five years. If we look at food and consumer staples, Nestlé has acquired 20 companies, including seven, in the past five years Pepsi 26 companies, including eight in the past five years. Johnson and Johnson. So if we go to healthcare, Johnson and Johnson 42 companies, Pfizer 42 companies as well. There's a lot of acquisitions happening in the space. And so then you say, Well, these companies are big, massive market cap, $100 billion market cap short. You know, the stereotype of them is they should be slow growing. John Deere $119 billion market cap up 250 two percent over the past five years. 

Bryce: [00:27:32] And just to put that into perspective, I think the S&P over the last five years is 85 percent. 

Alec: [00:27:39] That's a good start. Yeah. 

Bryce: [00:27:41] So that is a tick in terms of outperformance. So definitely you could say that that strategy has worked for those guys. 

Alec: [00:27:50] What else, though? Well, now some of these other numbers are going to look less impressive in comparison. But I think the call out is the S&P has been driven by those Big Tech names as well. Yeah, but Nestlé three hundred thirty nine billion dollar US market cap, up 50 percent in the past five years. PepsiCo $220 billion market cap, up 43 percent in the past five years. Johnson and Johnson four hundred and $63 billion market cap, up 38 percent in the past five years. Pfizer $294 billion market cap up 61 percent in the past five years. These are massive companies, but they're still growing at, you know, meaningful numbers. Yeah.

Bryce: [00:28:31] So a couple of other questions that I'm just thinking through at the moment. It's pretty common knowledge that particularly with Facebook and Amazon as well, a lot of these acquisitions are competitive in nature and the businesses just shut down. Yeah, they they shut the businesses down. Is is the same playing out with these big guys that you've mentioned here, Woody Johnson and Johnson, are they acquisitions for competitive nature or is it we want to build these parts of the business and it's easy to go and buy these. 

Alec: [00:29:00] I don't know what you mean. No, but either way, it's like if they're destroying the competitors, then they're not competitors anymore. Yeah, there are some pretty crazy starts around that. Well, the big five tech companies Apple, Amazon, Facebook, Google, Microsoft killed approximately half of all apps they bought between 2015 and 2019.

Bryce: [00:29:22] As a shareholder, do you see that? I guess. Yeah, it's it's 50 50. It's like, spend all this money to buy these guys to kill them, which I guess the flow on effect is that they're no longer competitors and you can continue to dominate the market further. But it's like, Yeah, you're spending all this cash just to kill a business. Yeah, yeah, it's an interesting one. 

Alec: [00:29:41] So. Look, this is this is obviously just a thought bubble at this point, but I guess I guess the like the concluding thought bubble on this all is the traditional way of thinking about big companies is they are slow growing and you kind of steer clear from the biggest of big because they've got a target on their back and everyone is trying to disrupt them. And if you buy the top of the index normally in 10 years, they're not going to be the top of the index anymore because, you know, technology changes. But more importantly, they get disrupted, you know, in our lifetime. The if we look at tech, the IBM's, the oracles, the, you know, like the the real hardware focussed tech companies got disrupted by a generation of software focussed companies and a lot of these large cap companies in other spaces, you would look at and say, you know, John Deere makes tractors and they're always going to make tractors and they'll grow at three percent a year and pay a nice dividend. And that's sort of the long and the short of it. But it feels like at this point in time, if you find the right company, it feels like the way the market is structured, the amount of acquisitions they're allowed to take place because. I don't know. The regulators aren't stopping mergers and acquisitions that they can. They have longer runways and that, you know, the market caps can get bigger because they can just acquire their way out of any competition. 

Bryce: [00:31:10] Yeah, it's an interesting one. It's like a it's quite a defensive sort of, I wouldn't say safe investment, but like 

Alec: [00:31:18] it's also let's be clear, it's also terrible for the economy. Of course, like we're not saying this from a policy perspective, not good. 

Bryce: [00:31:25] And my argument as well would have been coming into this. Why wouldn't you just try and choose the up and coming companies to to get in on them? But it's obviously clear that they're not even getting to the IPO. Yeah, you can't get in on them. These guys are scooping them up before they even go public. 

Alec: [00:31:44] Yeah, it's definitely bad for the economy and for investors that there's less choice in the market because these companies aren't IPO ing. But who it is good for is a giant mega-cap companies that just can bolt on competitive whatever they want. Yeah. And so, yeah, look, that's it's just a thought bubble at this point. 

Bryce: [00:32:03] Do you have some examples of some acquisitions that some of the big guys have done? Yeah. 

Alec: [00:32:07] Well, let's talk about John Deere because this is really where the thought bubble started for me, thinking about John Deere, thinking about how much market share they have. So for context, in large farm tractors, 53 percent market share in combine harvesters, 60 percent market share. The next biggest competitor is in like the 30 percent range, and then it's a tie off that. But they were growing so quickly and you wonder what's going on there. And so that's really where this thought bubble started. And it's because there's all this really exciting stuff happening in like the farm equipment space, the Internet of Things, the amount of sensors that are being rolled out into farm equipment, self-driving tractors. There's so much exciting stuff in this space. Precision agriculture should just massively increase farm yields and farming efficiency. But traditionally, you would think that innovation comes from new entrants in the market and that John Deere is not going to be great at internally disrupting itself. Yeah, but what you see is that they've made 22 acquisitions, 12 in the last five years, and some of the major acquisitions that they've made are these companies that were doing this stuff. 2017, they acquired this company, Blue River Technologies, which is like a precision agriculture company that's sort of seen as a big like was that was a big driver of a lot of this stuff that it is doing now, a bunch of other acquisitions over the past few years, but that has sort of driven them to be on the forefront of this innovation rather than be the company that's been disrupted by this innovation. Yeah. And so that's really where the thought bubble started. Yeah. So I mean, like, we've got a list of all of the acquisitions, but probably not super relevant to just read the list. But yeah, that's where that's where it started for me. And then it was like, All right, well. Is this something that plays out in other industries and that's sort of where my thought bubble is at the moment. 

Bryce: [00:34:04] Yeah, I'll just think about the car auto industry. It doesn't really play out in the auto industry. No, there's not that those two massive giants that I guess the disruptions a little bit hotter as well. It's not like you can just go. We have a totally different car. 

Alec: [00:34:20] Yeah. Well, I mean, Tesla. Yeah. But that the example would be if, like GM had bought Tesla. Yeah. And actually, you know what? Sorry, I think it is kind of playing out in the car industry like GM buying cruise. So like cruise was a self-driving start-up went through Y Combinator. GM bought it like two years into its life and now cruises on the forefront. Zoox, a self-driving car Start-Up Amazon bought. There's a heap of others, but maybe it plays out a little bit. Yeah, yeah, 

Bryce: [00:34:54] yeah, it's fascinating. And they says Nestlé and PepsiCo like some really old companies. But yeah, 50 percent past five years for Nestlé 339 billion market PepsiCo as well. 

Alec: [00:35:05] Yeah. And you know, like Nestlé, I mean, these consumer goods companies turn over their portfolios a little bit more. So, you know, they're always trying to sort of skate where the puck is going. Nestlé has turned over about a fifth of its portfolio of brands since 2017. You know, going into like organic this and artisan that, and a lot of like up-market brands, you know, like plant based meat and then a bunch of like health, food products and stuff like that. And they've ditched some of their slower growing lines, like some of the bottled water lines and stuff like that. So that's a bit more sort of formulaic. But I guess again, it's just like these big companies with big balance sheets with so much data they just have first crack at all these 

Bryce: [00:35:52] Dyson vacuum sucking everyone up. So very, very briefly. Ren to close this out. If regulation does catch up with what's going on and if the FTC or a trip or say here, come in and say, you know, guys, this is getting too much, either we're going to have to break you up or you just can't do it. Is that a good thing for shareholders of these big companies? What could be the result if these companies are broken? 

Alec: [00:36:15] Yeah. Well, it's a good thing for the economy. Yeah, it's a bad thing for entrepreneurs. Yeah, because it's a lot easier to sell to a big guy when you have through the valuation on an IPO and compete with the big guy. Yeah, I mean, there's some examples of where these big companies have got too big or have voluntarily broken up and what that has done for shareholders. So PayPal and eBay split off, and that increased shareholder value when AT&T broke itself up or was forced to get broken up. Don't know if that was how that one worked out. But again, that increased shareholder value. They're two examples that Scott Galloway, your your favourite professor, likes to talk about. But the one that we like to talk about is standard oil as well, where they, the government forced it to break up into three four companies in 2011, and it basically just created not 2011. Sorry, 1911. And it created so many of the oil majors that we know today. Out of it came Chevron Mobil Exxon, which later re-emerged. BP acquired a big pot of Standard Oil, a few others. But interestingly, when it was split up into 34 companies, the value of them doubled in the respective parts. There's an argument to say that if you split Alphabet up into all of its different companies, it would massively increase shareholder value. Now, YouTube alone is probably the most valuable streaming service, and they've got an incredible cloud business and then they've got search. And, you know, if you split them up and let them all run independently, perhaps that would increase shareholder value. And so maybe it would be the same with some of these conglomerates. Not as easy to say. I think this this thought bubble wouldn't hold, though, if the regulators around the world stopped the amount of mergers and acquisitions. And they were like, Yeah, this is not being good for consumers. Yeah. This has led to too much consolidation. We're going to pump the brakes. Yeah, but I guess the question is like, how likely is that?

Bryce: [00:38:28] Yeah. Well, given what's been going on over the last five or 10 years, the likelihood of it happening seems on the lesser side than on the side that they're just going to start clamping down. 

Alec: [00:38:39] Yeah, yeah. So anyway, just it's just a thought bubble, obviously not a fully formed thesis, but something that I am interested in watching. Yeah, for sure. We'll publish this chart on Instagram because it is pretty striking. And yeah, I guess the question is like, where does that go from here? And if it keeps going in the direction, it's going? Like, what's the investment opportunity out of that? And for me, it's like, is it just these big guys that just can cherry pick whoever they want to not compete against? 

Bryce: [00:39:09] Yeah, love it. Great thought bubble. So that that does bring us to the end of today's episode. So much going on in markets. If you're not following us across socials or if you're not following any of the other podcasts in our network, Canadian economist talk money to me. You're in good company or Get Started Investing feed crypto curious. Make sure you're following them because they're covering everything that's going on in markets as well. But look, thanks for joining us. A reminder Sign up for Fin Fest Equity Mates dot com slash fin fest. Register your interest and we'll keep you posted with all the developments that are going on there. It's going to be an amazing event, but Ren, as always, a pleasure to chat. Stocks love the thought bubble. Keep them coming. We'll we'll be picking it up next week. Sounds good. Hey, thanks for listening to this episode of Equity Mates. We love hearing from you, so drop us a line at contact@equitymates.com or even better, go to your podcast player and leave a five star review. Also, a reminder that the Equity Mates content train doesn't stop when you've run out of episodes to binge. We've got a brand new website, a Facebook discussion group. We're on Instagram, YouTube and slowly making our way as an influencer on Tik-tok. That's Ren. So come and say hello and join the community. We'd love to welcome you. Until next time.