Transcript
Episode 2 — What’s your Monopoly strategy
Tim Conlin 0:10
Hello, and welcome to the financial stress podcast, our second podcast,
Maria Miletic 0:16
our second episode ever, are we still relevant?
Tim Conlin 0:19
I don't know I'm not sure it's a little too early yet, but we'll judge that later.
Maria Miletic 0:23
Yeah, if we have hopefully we have more than negative one followers.
Tim Conlin 0:27
Yeah. So you know, when we do podcasts we need we have to have a small talk. I hate small
Maria Miletic 0:31
talk, go. You don't want to talk about the weather. We've always talked about this. I absolutely hate small talk. And I hate being in the elevator with people.
Tim Conlin 0:39
So do you remember when I met one of our colleagues once? No. Yeah. I said in the very first conversation, there's no talking about the weather. I said, so what's the relationship like with your father? Yeah, we'll probably have to cut this out because she might be listening, but I just think that's hilarious.
Maria Miletic 0:55
I think she liked it. It was good. Yeah. I mean, we really, really cut to the chase here. And I hate those podcasts that do start with Hey, how about that weather today? Hey, it's looking pretty. No, we don't want any of that. No stupid inside jokes between the two of us that no one else understands that. So keep it keep it clean to keep it clean. And let's cut to the chase. Cut to the chase. Let's talk about what we want to talk about. So what are we talking about? We're talking about monopolies monopolies. Yes, we're talking about monopolies isn't you know, the company is? But obviously a monopoly The game is
Tim Conlin 1:27
Oh, I love that game. Yeah, it's it's, you know, that game brings back such memories at family Christmases where we play Monopoly. And you know, it would be so intense that by the time Christmas dinner rolled around, none of us would be talking to each other. And it was awesome.
Maria Miletic 1:44
Yeah. And were you usually the winner or the loser of the game? Or was my sister Oh, she would just crush. Yeah, well, then I should be having this podcast with her instead of you. Probably.
Tim Conlin 1:52
Yeah. Well, you know, the goal in monopoly is right. What is it? Well, it's to dominate, and to make everybody else go bankrupt.
Maria Miletic 2:00
So it was a woman early in the 19 hundred's named Lizzie that apparently came up with the game of Monopoly or or a version of it. And and then years went by and then somehow this guy named Charles Daro actually got his paws on it. And I don't know whether or not I don't know where he found the game. But anyways, he ended up playing it with one of his friends. And the friends said, Wow, this is fantastic. You have to patent this, you have to you know, this is a fantastic game, how did you ever come up with the idea and he somehow took credit for this game, and made it what it is today. But then I guess now this Lizzie lady has been resurrected. And people are talking about her and saying that she's actually the original one that came up with the intent of having this game be a story about American greed. And she wanted to give us like a social commentary. Yeah, exactly. And she wanted to critique it. And apparently, she was, you know, a feminist beyond her time. And, and she sounded like very interesting lady. And then this Charles Daro, put his own spin on it. And so now, like you said, the whole point of the game is that you want to stay financially solvent, and you want everyone else to go bankrupt. That sounds a little bit like a company named that starts with an A and ends in mazon.
Tim Conlin 3:19
Amazon, Amazon, I get it. Yeah. Well, that's right. I mean, there probably are, first of all, we got to define what we're talking about today. So this isn't like a government granted monopoly. These are companies that exhibit some sort of monopolistic IE dominance in their specific area that they're competing in. And that's probably what we're referring to, you know, maybe a government granted monopoly would be maybe, let's say, when we originally, you know, the power industry in Canada, there it was, it was wise for governments to support investors who who would go take the risk of, of burying the cable in the ground or the pipeline's in the ground and then protect those industries with a certain period of time that it would be protected to, to have a monopoly or a dominant position, because of the risk they took. And it was to the public good to grant them this, this monopoly, but probably more, what we're referring to in the more modern days is companies that can, you know, establish themselves as dominant. And then maintain that dominance like we were talking last week about your Warren Buffett and the businesses that he invests in that can maintain the call it enduring competitive advantage, through what we're going to talk was innovation, you know, can they innovate and maintain and hold on to that?
Maria Miletic 4:41
Yeah. And we're going to talk about innovation actually, during our next podcast that will be then one of the main themes, but I want to go back to a point that you actually often often make and we talked about a few weeks ago to was competition drives profit margins to zero. Yeah. So can you expand on that? Yeah,
Tim Conlin 4:57
that's a interesting idea. So competition. Meaning competition is good. And it's good as a consumer to have a business's, be competitive, and therefore drive the cost down of a particular service. So, as a consumer, we might want competition. As a Canadian, we all know how much we pay for our cell phone bills. And we know globally, I know we paid more than most anybody else. So competition. Really good, strong competition drives profit margins down, because competitors come in and figure out how to do things better, and do things cheaper, and it creates an erosion in profit margins, then eventually, theoretically, profit margins will go to zero. So Peter teal, talks about this in He's the founder, one of the founders of PayPal, he talks about this in his book zero to one, which is a quick read, I really recommend it. And it just talks about how, you know, as an investor, we should seek out companies that that have monopolies and then more importantly, can hold on to them and can find some special secret, some secret sauce to hold on to that profit margin hold on to that dominant position.
Maria Miletic 6:15
Well, and you always say that you do love companies with a monopoly, right? And we won't go into a portfolio job.
Tim Conlin 6:22
We're not here to make specific recommendations. But just as an illustration that let's talk about Google. So Google right now, and you can go on the internet and find out what percentage of internet searches are done on Google, relative to other search engines. So what do you think? Yeah, Bing, Yahoo, whatever.
Maria Miletic 6:41
Use the Bing. Yeah.
Tim Conlin 6:44
Some people do,
Maria Miletic 6:44
I guess. Yeah. But that's, that's another story. But yeah, probably over 80%.
Tim Conlin 6:50
Actually, yeah, it is over eighty. So it's actually over 92% of internet searches are done on Google. So Google doesn't have any government granted. Right to to be the dominant search engine. They're, they're the dominant search engine, because of the way they run their business. They innovate and they've made it. so ubiquitous, because it's, it's a, it's a great product. So they were first to the market. Well, not really, first America, there were others. But they were the first to do it in a big scale way. So you know, Google's been dominant by innovating. They began by, you know, kind of giving away the service for free, which now we know, we don't really believe that it's free, right? Because we know what they are paying a price for sharing the price because they use that data. So it's not really free. An example of PayPal. So PayPal, really looked at something called CLV. So customer lifetime value. So when they wanted to build their business, they knew what a customer to them would be worth, they knew a minimum value, what
Maria Miletic 7:53
that would be. So did they actually charge people to use PayPal?
Tim Conlin 7:57
No, they paid people to use PayPal, if you can believe it, because they knew that CLV was so high that in the early days, they gave people 20 bucks to sign up for PayPal, so they're given it away. Now, they obviously had someone bankrolling them investors that saw the upside. And they literally credited people's accounts $20 and paid them to refer to friends, and they built a business, it basically went viral. And they were able to establish themselves as sort of an early, you know, early adopter, or call it other monopolies and companies in monopolistic positions. It's not all high tech, you know, you think about the railroads in North America. You know, they're they're in a position where they've established themselves and now are protected from competition by some might argue even the heightened focus on environmentalism and and really what's kind of getting in the way of, let's say, the pipeline industry, as well as the ability to build a pipeline if you, you know, you can't traverse across a country and go through state and provincial and indigenous lands without getting everybody on the same page. So as we know, now, it's very difficult to build a competitive railroad it'd be virtually impossible. So now, the established railroads have what appears to be a lifetime monopoly monopolistic position. And, you know, that's something that would allow them to, you know, be strong and competitive relative to their competitors, which would be, let's say, long haul trucking, long haul trucking, you know, they have to face busy roads. And as they haul their freight into a busy city and in rush hour there, they're fraught with all kinds of inefficiency of waiting and traffic, where the railroads literally have the right to stop traffic. No You ever been on ninth Avenue in Calgary driving into downtown? When the railroads coming through on 11th Street? A put down those gates coming through. And it doesn't matter if it's 7am rush hour. They have that right. So that's a competitive advantage is that our cities and roads become more and more congested. We may not feel that way now with the pandemic, but really in a in a time of more normalcy. We're going to see the railroads continue to gain that competitive advantage overall,
Maria Miletic 10:30
it's where they are part of your monopoly strategy.
Tim Conlin 10:34
Oh, yeah. So in monopoly, my strategy, maybe I shouldn't give it away. Oh, I know, you have to small talk here. So what you got to do is you got to try to get control of those railroads as soon as possible. And you try to get all four because of course, you get more revenue if you own them all, instead of just one. And then you use that cash flow to go buy those premium properties when they come up for sale. So you
Maria Miletic 10:59
still want to buy those premium properties right now.
Tim Conlin 11:03
You wait, you wait, you wait a little bit boardwalk and Park Place is empty right now.
Maria Miletic 11:09
Okay, so now you've given us your monopoly strategy. So everyone can stop listening now and go play Monopoly and see if it works.
Tim Conlin 11:15
Yeah, I'm actually now we've been talking about I want to play some monopoly. So maybe we should I'm just worried that our relationship will suffer.
Maria Miletic 11:21
Yeah, I think we might not want to work together anymore after but we can see and decide after but we'll just play a game like go fish or something. Yeah, I think that's no more tour intellectuals go fish.
Tim Conlin 11:35
hungry, hungry hippo.
Maria Miletic 11:38
You know what? Yeah, go fish might be.
Tim Conlin 11:41
I'm not good with numbers. So
Maria Miletic 11:43
anyway, we had, you know, a discussion that was more against the investors side of things, as opposed to the consumer side of things. Right, which we're gonna get into later. But I think in just wrapping up the points from the investment side, is what's your what's your advice when you're looking at companies with a monopolistic position?
Tim Conlin 12:05
Well, I mean, I think we should as investors, I'm not saying as a consumer, but as an investor, we should seek out companies in a monopolistic position, we should look for those as opportunities and look for companies that are able to maintain that monopolistic position. And, you know, it's pretty easy, mash into that easy, but you can identify monopolies. And one one kind of ways is if they're getting grilled by regulators on TV, chances are, they're a monopoly. And then recently, we've we've seen, the big tech companies all get called before congressional committees around their competitive practices. So that might be a hint of not something to fear, but it's a pretty clear sign that they're monopoly maybe. Secondly, on the opposite side of it is is companies who perhaps espouse their how special they are, are typically not monopolies. So you know, the monopolies tend to downplay how monopolistic they are. And they were always mean, look how competitive our industry is. Those are the ones that are monopolies and the ones that talk about how special they are. Or unapproved. They're trying to prove something. Yeah. And then finally, I'd say, look at the railroads. I'm not, you know, saying it's right for every portfolio. But, you know, the railroads are in a position that even though they're not high tech, they have a special competitive advantage and a special moat around their business that'll prevent competitors from coming in and eroding their profit margins.
Maria Miletic 13:37
Well, yeah. And it's easy to forget about them too, for that reason, because it's not high tech. And it's not top of mind for everybody, especially right now in this world that we live in. It's all technology, technology, technology, right. And so that's, you know, sometimes the traditional ways, especially when it gets harder to actually compete with those traditional ways, that's something to be looked at, right? And something to be feared to.
Tim Conlin 13:59
So, you know, the real life strategy that Bill Gates employees, like monopoly is is very similar. Bill Gates actually owns 16% of cn rail, personally, or personally on the foundation between his foundation and himself personally, the Bill and Melinda Gates Foundation, even 16% of what is $100 billion company, so and his buddy Warren Buffett, you know, I think was about 11 years ago, went and bought the entirety of Burlington Northern Santa Fe Railroad. And now that's owned by Berkshire Hathaway. So we can see in a real world example that even you know what a tech mogul like Bill Gates and a diversified investor like Warren Buffett sees the value in in the railroads and what they what they offer, you know, to them as investors as there's a certain amount of certainty around their business more so than many others has a competitive advantage that the railroads will hold on to.
Maria Miletic 15:03
Yeah. And 16% is a lot, maybe, you know, we wouldn't want that for everybody in everyone's portfolio. Right? That's a huge number, but relative to his, they know that we don't know
Tim Conlin 15:15
16 billion on 100 billion net worth. Yeah, I think he's gonna be okay.
Maria Miletic 15:21
Yeah. So it's, um, it's a good conversation about about that from an investor's point of view. But then, obviously, speaking as consumers rather than investors, that's a much different thing. Yeah, that's,
Tim Conlin 15:34
that's a whole different conversation. And, you know, we, what's that Netflix documentary? That's the social dilemma, social dilemma. Yeah, I mean, that's terrifying. And when you think of this monopolistic position that Facebook has, and, you know, in social media, and then of course, we've talked about, you know, Google's position in search, as a consumer, you start to become concerned that, you know, maybe we're not getting as much innovation and as much quality product at a at an affordable price. Because these companies are so dominant. And, and the other thing is that companies might use practices to, to sort of squelch competition by buying up small, upstart competitors, because, you know, with the 10s, and hundreds of billions of dollars that large tech companies have they see any new entrant coming in, they can just simply buy them up. So I think, you know, when we think about, you know, as a consumer, you know, we want a certain amount of regulation around I think, a big tack to slow down that anti competitive acquisition strategy that they they've shown that they're, they're willing to use. So that's something that as a consumer, at least I feel, you know, that's where the regulator has a role in terms of, you know, innovation, though, what I love about these monopolistic companies is they they are they feel threatened every day, from potential competitors. And they innovate to maintain their monopolistic position. So I have a hard time believing that it's going to stifle innovation to happen and all the listed companies there, because they're just trying to hold on again, we refer to Jeff Bezos and Amazon that they take the mindset that they believe Amazon, is, is under the threat of bankruptcy someday. So they have that kind of urgency and how they manage the business to maintain to stay on top. Exactly.
So and that that means innovation. So, you know, as a as a consumer, you know, I don't know, I'd be curious what you think I mean?
Maria Miletic 17:52
Well, you know what, I think that and when we start getting into some of the bias conversations, too, and the biases that we have, as people as an investor as to this will come out more, but I think that lots of people suffer from analysis paralysis, right? When you have so much choice, that it becomes so hard to actually make a choice for what it is that you're looking for. And I suffer from this myself, too, even when I was looking at, you know, let's say, baby monitors, you know, it's that there's so much on the market, that it's almost just easier to have someone with a monopoly that, you know, you know, what they're going to trust them, you've used, you know, some of their other products before, like, if Apple had a baby monitor, I would be bored, you know what I mean? So I think from that point of view, it's just
Tim Conlin 18:32
him and Maria had a podcast,
Maria Miletic 18:34
would you do that over all of the other podcast, there's
Tim Conlin 18:37
a million podcasts, a
Maria Miletic 18:38
million of them. So it's, so it's hard, right? But that that analysis paralysis is made then so much easier when you do have a company in a monopoly as a consumer, then it's like, okay, they're, they're obviously there for a reason. And they're in that top spot for a reason. So
Tim Conlin 18:52
So bottom line, you think we're better off with monopolies?
Maria Miletic 18:55
I think so. I think, you know, and it's whatever way you frame it, though, it becomes a question of framing as well, which is another bias that we're going to get into loads and loads of the time, but when I just think of, you know, maybe with my cell phone bill, I'm not so happy that we have monopolies but I think with most other things, I'm, I'm a lot happier with it than I am one.
Tim Conlin 19:18
I think it's it's just what going back to the idea that competition, you know, top the top dog if they're good companies, they're going to recognize that there's someone's going to be biting at their heels. So
Maria Miletic 19:29
then I don't have to read a million in one review, as of all the other people that are just trying to scratch and claw to make their way into my life or my home. Right. It's I know that they're, they're there for a reason. So in that, and that's something that we want to close off with today and discussion. Good so and have people consider as consumers, do you think that you're better off with monopolies or without monopolies? Yeah,
Tim Conlin 19:52
I'd be curious to hearing back from people with just to find out what they think about the whole thing.
Maria Miletic 19:57
No, well, if you'd like to our discussion here today, Hopefully you can share it with your friends and family and we haven't scared you off yet. Thanks for listening.
Tim Conlin 20:07
Thanks, Maria. We'll see you again next time.
Transcribed by https://otter.ai