TIP675: Best Quality Stock Idea Q4 2024 w/ Clay Finck & Kyle Grieve
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P on today's episode, my cohoes kl gree. When I given a overview of our best this quarter, we discussed master card. Master card is a well known company in the world of quality investors since this I P O in two thousand and six, the stock is compounded at north of thirty percent per year. Alongside these master card Operates and a do opl stic industry, which enables them to continue to grow for a long periods of time with little capital investment. The company is also held in many super investor portfolios, including chat, oi, dev asia, warn buffet, fw, shine guys, beer and tomo, many of which have been featured on our show during this episode kill.

And I give an overview of master business model and what happens when we make in everyday dial payment why master card in VISA have one of the strongest motes in the world, why fin tech companies aren't a threat to master card and VISA the potential risks investing in master card and our thoughts on the valuation and why we sold our position in evolution A, B, which we covered in q one of this year at the end of the episode. We also discuss the events we're hosting for A T I P mater, my community in omai during the bircher weekend in may of twenty twenty five. With that, let's dive right into today's episode on mastercard.

Celebrating ten years and more than one hundred and fifty million downloads, you are listening to the investors podcast network since twenty fourteen. We studied the financial markets and wrap the books that influence self made billionaire most. We keep you informed and prepared for the unexpected now for your hosts, play, think and tile grieve.

Welcome to the investors podcast. I'm your host, clay Frank, and today i'm joined by my co host, KO grif for a quarterly best quality as series kal, thanks so much for joining the media and here have to be here as always. So in case you're neurotic to the show, the best quality idea series is where every quarter, k and I do a deep dive on the stock we find to be a high quality company and fits well into our investment well here.

So for today's episode, we're going to be discussing master card before we get into this company is specifically, I wanted to mention that the stock market overall just seems not particularly cheap at the moment. And i've talked with a few other investors recently and they seem to agree with me that they're not finding a lot of bargains there. So at the time we're recording here, it's october twenty nine, the S M, P, five hundred is training near record high and then the adec is also near record highs, which I think helps illustrate that the market overall isn't too pessimistic on what lies in the future ahead here.

So in our previous quarterly episode, we highlighted all the minion front lines, so that stuck at the time, had to draw down. And then the episode before that, we did lulu lemon for q two twenty twenty four. And that stock was also down at the time and both have had a nice recovery since the summer as the market just seems to be less concerned about the strength of the U.

S. consumer. So now master card at the time of recording isn't in a draw down like those stocks war. It's actually trading round all time high, which doesn't necessarily mean the stocks are talks, not a we will be touching on the valuation later in the discussion here and sharing our thoughts there.

So master card is definitely a fun company to cover because it's likely one that all of our listeners are likely familiar with, a brand that's likely in miniver wallets today. And it's a stock that happens to be held by many big name top investors, some of which have been interviewed here on the show. So when I pull up data, I noticed def conTessa a guy beer tomorrow, tom gainer, warn buffs and french rover Shawn, they all have a position in mastercard.

And then some of those names have had IT as a carefully for many years, and then others have had IT as a small percentage of their portfolio. Like buffer, for example, is just a small slice of his equity portfolio. And then I should mention that I do have an interview schedule with dev concession a that's going to be released on december faiths to be sure to catch that episode as well.

Now chuck autre, he's on record for talking a little bit about master card, and I wanted to share a bit about what he has stated publicly to get this conversation kicked off. So all is firm. OCR capital management.

They manage north fourteen billion dollars out of middle berg for gania, just a small little town outside of dc. And chuck, okay, is fund. They first purchased VISA and master card around twenty ten when they're trading around ten or eleven times earnings.

I did go back and look at the multiples of these stocks around that time period. IT seems like IT just IT was a very short period of time. They got believe this cheap.

I'll see around twenty eleven, twenty twelve there around twenty five times or twenty times. I mean, when occurs started talking about this business, I just found IT really interesting. So he started to dive into some of the numbers of the business, the margins that returns on capital and so on.

The way put IT was there wasn't a word in the english language that was superlative enough to describe how good these businesses were. He said that you could cut their margins and half two times, and their margins would still be above the average american business. So clearly, something extraordinary was happening underneath the surface.

And when child cocker's says something like that is certainly catches my attention, to say the least. So he did his due diligence on the business, and he jokingly said that he thinks he knows what's going on with the business and what's happening with its mode. And he just quit talking about IT.

So in their focus, fun mastercard is the second largest position consolation software. Number one, master cards at a eleven point nine percent, waiting in is six point eight percent. And then just before we have record here, I was thinking about master cards margins and how they compared to some other big tech companies that people say are high quality companies.

So master card's net profit margin is around forty six percent. And when I pulled together some of the other big tech players here, so apple is that twenty six percent nowhere near master card alphabet, also at twenty six percent, met as at thirty four percent. And to my surprise, in videos, margins are fifty five percent.

So a few these big names that I pulled in videos only want that anywhere near the margins that master carton would have. So who would thought that this payment company would have margins that are just so high and a big this company? Is this just one of the most profitable companies in the world?

So I, of course, known about master card for quite some time, but I actually just started to learn more about the payment industry when, why IT, who's an equity analyst and a member of our tap master, my community, he gave this wonderful presentation on the company for the group. So just to give a brief overview of the company here before he throat over the U. K.

O. So master, they Operate in a dual list industry right along side VISA. And they both religious act as the payment rails of the payments ecosystem.

So for the vast majority of people, when they make a digital payment, VISA and mastercard are helping facilitate that payment as they manage the network that connects all the card holders with all the banks globally. So both VISA and massacres ard have a really strong competitive a position in the payments industry, and we're going to beginning into that. And then most credit and debit card payments are flowing through them.

I should also mention that we're going to a be mentioned VISA quite a bit during the discussion. And these two just really dominate what they do in the payment space. And for the most part, they really aren't stealing share from each other.

And they're almost interchangeable in a lot of ways because the very similar companies, and for the most part, they are competing with each other too much in terms of stealing share from each other. They're just both benefiting from this growth, digital payments. So I personally like to shy away from companies that are financials since the largely outside of my circle paints, I personally see mr.

Born as a technology company that's really enabling the digital transactions that were all doing everyday. And it's important to mention that they don't loan money or they don't take on any credit risk. So the core their business is helping facility payments to help make that process really seamless, which will, of course, beginning into more detail here.

And then just some numbers here related to the company. The market capitalization is four hundred and seventy billion. That makes them the seventeenth largest public company in the U. S. Based on market cap, they've distributed over three billion cards to cardholders in over two hundred countries.

In twenty twenty three, they had revenues of twenty five billion and Operating income of fourteen billion, and those have all compounded at nice rates over the past ten years, double digits return on invested capital over forty percent, pe ratios around thirty nine. So definitely treating at a premium to the market the enterprise value to earnings before interest in taxes or and then finally, the stocks compounded around twenty one percent over the past decade, excluding dividends. So it's been quite a big one for long term investors.

And when you look at over the past ten years, a lot of that has just come from the growth in the fundamental, but there is a small portion of multiple expansion there when you zoom out. So with that, I think we should get into how they sort of fit into the payments industry. So at first gLance, I think one would sort of think that a company like master card would really just dominates their index IT would be really hard for them to have a solid mode.

I think most people would assume that given they know about all these fin tech names, you got paypal, stripe, square, erb, adan. There's a longest of companies within the fin tech ecosystem and then startups that are bc funded. So ky, how about you give us a sense of how master card really fits end of the bigger picture here.

even though i've been using credit cards here for a very long time. Same as you, I realized just how little I knew about the business until I got a chance to see White presentation, which really open my eyes. So I don't think mastercard is necessarily a super, super complex business, but this is not something that i've found historically.

Is microcar confidence kind of similar to you? So I really had to focus learning a lot more on how businesses like massacres ard fit into the payment ecosystem and what the pain ecosystem actually is. So you know, if you look at your credit card right now, you'll probably realized that IT has a VISA or master card symbol plaster on IT unless me R N M max user, I use IMAX, but my debit card, for instance, actually has the master card symbol on IT.

And you know, numerous other credit cards might be branded under a different name and still have the VISA or master card symbol on that credit card, or the these cards have the symbol because they are using the VISA master card credit card network in order to accept payments. In the case of my bank card, for instance, if that bank card did not use the VISA or a master card network, then the merch IT were not actually be able to accept my payment. So the interesting point is that when I use my bank card to transaction via the master card network, master card isn't extending the credit kind of like you mention their earlier, so that is core, you know, master card is not in the credit card business.

Master car d is essentially the infrastructure that needed to facilitate electronic payments. So without a payments process, so you can make payments, or if you have a car that's on a payment network that isn't accepted, you can use that car, you have to use different forms of payments like my debit card or cash. So I personally run into the issue all the time because M X is my primary hardware.

Unfortunate, can't use IT when I go shopping. Usually for smaller ticket items, there is just some urgent that I don't want to pay the fees specifically to a max. I know max as higher fees compared to via master card.

So sometimes when I go into a place to buy food, for instance, i'll go with my amex card, tap IT machine says, sorry, we don't accept IT and then I have to use my debit card or cash. So now let's go through what a typical transaction would look like on the matter car payment network to give you a Better idea of what that looks like. So there's basically five parties that are involved in every single transaction using the master card payment network.

But same thing is a car payment network. Be the exact same thing. The first first thing, let's say we're going to use myself as an examples.

So that's me. I'm the hard holder, so that's going to be the first party. The second part is going to be the merchant.

So let's pretend like i'm going to blue lemon, and I want to buy pair pants. Blue lemon, in this case, is the merchant. The third party is going be the issue, which is my bank.

So I personally use bank of montreal. But this could just as easily be, well, fargo chase. Here in the united states, the forth parties gonna the quire.

So this would be the bank that the merchant uses. So let's say, little lemon, their bank is chase, so they're the acquire in this case. And the fifth party here that can be the payment network, which is gonna be master card.

So master card is going to approve and transfer money from my bank, the issue to the lemons bank, the acquire. So let's just say, now that I go to love lemon, I buy my pass from them using my card. IT has a master card logo on IT, I tapper swipe my card.

Now the acquire bank of little lemon chase is going to see this transaction and it's going to see that it's a master card credit. That information is then sent two master card where they then see that the issue is a bank of montreal credit card. Mastercard is then going to send the transaction information to the bank montreal.

The bank of montreal approves the transaction and then sends the money back to the lemons bank, which is chase to an ally to transactions for a hundred box. I'm not paying the hundred box back to mass card. I've to pay that money back to bank montreal.

So the network transfers the necessary information to facilitate the transaction and make IT basically as seamless as possible for parties and love. Obviously, there's a lot of different parties and moving parts going on here. So I think it's worth quickly mentioning just the difference between master card and american express.

So they are the same in the fact that they have a network and they approve transactions and transfer money. But the difference here is a max is also an issue and and acquire. So this means when I use my amx card, I have to payback a max. So amax has credit risk whereas master card doesn't. It's the issue with master card .

that whole process you just quickly explained IT really just happens in a matter of, say, one second. And with regards to M, X, they're really a closed network. Grez, VISA and mastercard are open network.

So this it's really difficult for amax to really get to near the scale that via mastercard rp because M X is the card issuer and the payment rail in this close system. And then they also charged higher fees. So that hampered is their ability to scale, at least to the same degree.

And then they also, as imagine, take on the credit risk and issuing the credit cards. So say, if you're small mom and pop shop, you're not going to be too excited about accepting max when you could just accept band master cards. Since seem know that essentially everyone has those cards, M X also tends to target really just the higher and consumer.

So to give a reference point, there's around one hundred and thirty million M X cards that have been issued. So that's a pretty substantial number. But there's also been around one point two billion mastercard, either debit or credit cards that have been issued.

So you and I both actually have an M X card because M X just really gives great benefits and great rewards. But it's a merchant who's actually footing the bill for those rewards since M X. Is charging a higher feet to them.

So really, the way master card is making their money is on the individual transaction. So typically, they're getting a fixed in a variable amount. And if we just put some numbers on IT, usually it's anywhere between point one percent and point two percent of the transaction amount.

So say if the transaction one hundred dollars, that's anywhere between ten to twenty cents and then you're typical transaction though IT has a bee of anywhere between two and three percent. So i'll go into here kind of where that fee is really going and why master r and VISA really are not getting the majority of IT. So one of us walks in to lululemon.

We use a master card, debit card, and IT cost one hundred dollars, just over two dollars in thousand nine censor. So is going to be paid in fees along the way. A dollar seventy five of that is going to go to the issuing bank, which is our bank.

Around fourteen cents is going to go to master card. And in the remaining thirty cents is going to go to the payment processor. So many people, I think my form outsiders view, look at the payment industry, see a two percent or three percent fee that's being paid along the way and just say that VISA mastercard are right for disruption because of this large fee they're getting.

But the reality is they're getting one tenth or one twenty eighth of the overall fee that's paid on a transaction. So most of us actually going to the issuing banker, our bank and the example of blue lemon. So I think this is a bit into the mat, which will beginning into they really are taking that much out of the transaction despite what I mentioned at the top, these businesses being so, so profitable.

And for this small fee, they're providing a significant amount of value. So they're really making this whole process same less for all parties involved in IT allows us to essentially shop anywhere globally and provide plenty these services on the back into that will be begin to I wanted a transition here to talk about the network effect. So again, like I mentioned, if you're a small pop, you can have systems in place that's gna allow people to just walk in to your store and easily make a payment.

Since almost everybody uses the VISA or master card rails, that is what that shop is going to want to cept. So this is why you see some places, as you mentioned, not accept american express or maybe we've been charged an extra fee if you have an M X car because mx has around network, they're charging higher fees to businesses that use them. And many these small businesses probably on a fan of paying a bigger fee when they're already paying two or three percent uv and master card and don't want to pay more if they don't have to.

So if a competitor tries to start up their own payment network is a bit of a chicken and an egg problem. So the merchants won't care about any new network unless they're able to get a ton of customers coming through the door. The customers are not going to want that card if IT isn't accepted everywhere. So there are actually been multiple attempts in the past to get in on that work of the ground, which have essentially all failed. With the exception are ugly of american express, which is sort of carved out its own nation ecosystem.

And I just a quick search, john, what are the top credit cards for twenty twenty four? So according to nerd wall IT, the top choices for credit cards are capital one, chase wealth, fargo city and american express, and all of these cards use their VISA or master card as the payment real, except for american express course. I've personally been impressed by the network effect aspect of this business because when we hear about the network effect, so often, we hear about facebook and google search in airbnb, and usually those are these tech businesses that people are all interacting with. Her familiar weth. But master carton VISA, I think, might have one of the strongest network affects of the mall.

That's right, place and you master card, I think quite clearly has a wide mode. Otherwise, I wouldn't be making more, more profit each year. But given the fact that it's net profit margins have only been as low as thirty one percent over the last decade and continue to expand, other businesses just aren't seeing much success at taking any market chair.

But I think as you mentioned, its next one possible for other processors to get their foot in the door. In addition to the network effects that you discussed, there's a few other reasons that make IT difficult for others to compete with them. So the payments networks, like you already mentioned, are kind of in this dual ly, and they're deeply, deeply entrenched, and it's very, very hard to make any inroads seem to taking market here from them.

So if we look at this from the perspective of the consumer merchant and sure, they can kind of give you another really good view of just how powerful the network effects are. So as a consumer, I personally know this, you know this as well. We want a card that can hopefully be used everywhere that we go shopping and switching cards.

Yeah, you can do IT, but it's kind of of knowing you to call up your credit card company, you have to cancel IT to ask you why you're canceling IT bbi have to fill out forms way. It's just not exactly the most enjoyable experience. And then let's add to the fact that a lot of us have credit cards specifically for the use that we're collecting points.

So for that reason, I don't want to switch a way to another credit or because I know that the one I have right now is giving me the most amount points. When we look at the merchant, they want to minimize any friction that they have with any of their potential customers. Let's say you have one corner store on one side the street, another corner store on the other corner.

If one corner store accepts VISA and master card and the other one doesn't, well, chances are people just aren't going to go to the other corner store and they aren't going to go to the one that does accept the VISA massacred payment. So when you think of is that way, using the VISA as car network essentially is just removing any friction that a potential customer would use to justify them not shopping with you. So even though you have to pay these fees that are annoying, unfortunately IT just worth IT to eat the fees and unfortunately pass IT onto the customer.

Then when we look at the issue, the issue is also making a feel like clay. Just point that out there in a hundred dollar transaction, the issue that says making a Better dollar seventy five. So they want people to use their cards.

And so from the issue of standpoint, they want as many of the merchants to accept their cards as possible. And this way, customers use the issues cards and then the issue can collect those nice fees. And then as a network is growing and more more merchants are using their cards, more issues, more partner with those networks.

So you know, the more widespread the cards can be used, the more the consumer uses the card. So the next kind of competitor advantage is in regards to scale. So issues actually end up paying less for using master card network of the more that the customers use their cards.

So they have a couple different ways doing this, so they have rebates. So for instance, master card will offer discounts based on payment volume. So the more progress payments below are the fee per transaction.

When you look at this from a margin perspective, the incremental cost for master card of processing more and more transactions is cheap. That's why their march continue to go up. So as the business grows, margins will continue to expand.

So just to give you example here, at the end of two thousand and nine master cards, net profit margins were twenty nine percent. Today, there are six percent. So is just insane how much they've been able to increase our profits.

So the next competitive events we will talk about here is switching costs. So just a very important question that we should ask in regards to master card and just payments and networks and generalists, why would an issue switch their payment processor? As both clay and I am now talked about here, the network effects of master card just so good that in order for a potential competitor to actually make a difference, the'd have to incentivize issues to switch.

And given the scale that master card does, this seems next to impossible. So I looked up the trAiling two month transaction volume for a massive card, and it's nine point three trillion dollars. That's trillion with a tea.

The number of here are just so large that it's barely comprehensible, but I think IT just really shows you how much sales volume a competitor would need to take market share from mastercard. And you know, let's say there was another payments processor that's bragging that all we processed ten billion dollars of transactions is visit mass card, even gna care. I mean, I don't think they would actually care just because in order for another competitor to transaction volumes in the trillion of dollars, like that's going to be really, really hard and in my opium, pretty closely.

Next one possible. So the other parts on here on switching cost or that has to do with the cards themselves. So the cards expire over a four to six year period.

And basically, once the card is issued to someone like clear me, that cards stays on the payments in network until they expire. So because these cards have these longer expiration dates, the issue is essentially locked in to that payment network for the entire duration of the issue cards. To the next point here on switching costs is that the money that's collected by the fees by the issuing banks is used to reward their customer.

So if my banker, claybank, was to move to another network that was providing the issue with lower fees, then that would mean that the rewards program would probably diminish value. And I know personally that if my credit card, let's say, I are in unload, are in four points per dollar spent, and if, for some reason, they went down to two points and then I could find someone else that would pay me four points, I would just probably jump ship. So IT makes a lot of sense, given the scale of master card, that people want to stay with them because as long as they collect these large fees, they can pass those rewards onto their customers.

So the final competitive advantage, I think here I want to discuss more is brand. So I think that master card finial has a strong brand. Mo and IT made me think of hamilton helmers points on how part of a brand strength is what he labelled uncertainty reduction.

So master card is a trusted brand has been around now for decades, and it's built this long history of trust between customers, merchants, issues and acquires. So throughout its history on the payments network and in the payment network, it's built this uncertainty reduction into the brand. And an incumbent who wants to try to take market share, they're not going to have that brand strength.

They are not going to have that history of excEllence that master card has had over the decades. And it's going to be really hard as well for them to just establish trust with all the parties that are involved. Let's take a quick brick and hear from today's sponsors.

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Yeah, the point on brand is sort of interesting. I actually just got a new debit card for my bank. I would say the brand power moralize from the perspective of the issuing bank and not from the perspective of the consumer.

So when I got my debit card, my bank didn't say anything about whether IT was a VISA card or master card. So to me, IT works the exact same. So the brand strike is good if your VISA mastercard relative to, say, a new entrant.

But mastercard's brand relatives to VISA really, I think, is irrelevant to me is the consumer. And then from the issuing bank perspective, I know that they've built these relationships with some of they's big banks. So one bank might prefer this.

They might have a special partnership of VISA, another bank might have a special partnership with mastercard. That's not to take away from the mode at all. I think all of the other points we mentioned are really important. But I would probably emphasize brand that might be the weak st competitive advantage out of all the things we sort of mention in terms of how entrenched they are in the industry.

So I think that's kind of interesting in the the nine point three trillion dollar figure brings up the thought experiment ment of how much capital would IT really take to disrupt this because there was obviously some big players with a lot of capital. And i'm going to get to a point here on apple. But more broadly, fin tech is really one of those spaces that just seen so many these startups enter.

But what all these companies have done is just simply built on top of master card in VISA. So despite this capital being invested into the space, master card and VISA just become more entrenched with all these companies writing even Better payment solutions to customers. So there still is dropped side of the payment industry with VISA master card sort of running the show on being the rails and only getting stronger as things like apple pay and strike these companies continue to invite in the space and help contribute to that growth overall.

So a few years ago, president stag interviewed Shawn standards stock in. He's the president of ensemble capital, and I love the point he made on the show with regards to apple. So you think that if any company could compete with master garden VISA, IT would be a big tech player with practically an unlimited amount capital.

And when you think about apple, they have a tuna da on these credit cards. They have all our names. They know what bank we use.

We're all almost using an apple device and IT just seems like a prime player to this potentially try and inner and shake things up. So when apple launched apple pay, IT was still bill alongside this and methods AR they should intentionally not to compete with these behaviors. And it's just essentially just a way to use their network, and I think really helps highlight the strength of their motes.

So when we just went to new york city with our master, my community, I used apple pay to pay to go on the subway and what night that just via mastercard, seeing the remote continued to strengthen as these new technologies and this payment of space are emerging. When we look at the market share between these and master card, I took a look at data that showed a bank card purchase volume for twenty twenty three. So VISA actually has sixty three percent share red globally, and the mastercard is thirty seven percent between those two.

And this vary a bit when you look at different countries or different continents. So VISA typically as a stronger foot hold in the us. In the master card captures around half of the market in europe, for example, today have a stronger foot hold in europe than they do in the us.

But vision massacred ard actually. Don't dominate in every single country around the world. So there are places like china, for example, where there's these other networks that are exclusive essentially to china because the C C, P, essentially just doesn't want them Operating in that country.

But I believe when people who live in china need to travel outside the country, they need to use a VISA or a master card to be able to make payments. So that shows just how china's sort of its own market in itself. We can look at germany, for example, VISA mastercard, to have a fairly small market share.

But then you look at bigger markets like the us, N, D, A, mexico, the U. K. And many these other countries. You see that it's just really a do optimistic industry.

So IT really depends on the country with what you're looking at here in some countries and network effect is really strong. And than others like china, they're just not going to be a big player there. And then another piece that's important to understand is that both of these businesses are benefiting massively from the trend from cash payments to digital payments.

And if you're in the us listening here in the us, you probably wouldn't see this is a big driver of their growth. But this is a huge secular trend when you look at the global picture. So a lot of merchants complain about the transaction fee in these cards, but they continue to use these networks because they provide value.

And there's just not an alternative that makes any sense. So if you don't accept VISA and master card, the alternative is maybe just accept M, X, which a lot of people don't have A M X, or just accept cash, and that might be even more costly than painting that two or three percent fee because cash is easier for employees. Still, you need to take that cast to a bank, take of your selling big ticket items that a lot of cash that's piling up in your store.

IT doesn't scale well. Employees get sick from touching cash, and customers just love the convenience of using a card. So that's why everywhere we go, we can essentially use cards.

And IT reminds me, I just recently got told when I got back from new york and I went to pick up my car in the toy business, only accepted cash, and I was so upset at them because I didn't bring my debit card. I couldn't go to the eighteen because I only have my credit card on me, just so used to racking up those credit card points. And of course, this is the one time I didn't have cash on me.

But I think I just helps illustrate how and grained digital payments are here in the U. S. And canada.

I know some of my friends, like whenever i'm with them and we go to a bar, something we need to pay with cash like they essentially never have cash on them. It's just something we're so used to. And many of these emerging markets are actually in the early days of this transition to digital payments.

So one of the points that our community member made in the presentation is that you and I we really like our wards points. We literally get paid to use these credit cards. So even though the merchants don't really like IT, since their fees provide the rewards of the other the day, the existing payment system just seems to get more and more entrenched as more and more people are on boarded onto the network and the network affects strengthen.

And then when we look at the total addressable market for recent master card, we can simply just look at global P. C. E. And this is of saying global world bank estimates global P. C, E to be fifty one trillion dollars.

This number is growing by two to three percent per year before inflation, and then we can add in another two to three percent in inflation. So that brings the total adjustable market alone is growing by four to six percent per year. And I should also mention that this probably makes vent mastercard are ugly, pretty good inflation protections just because their revenues and earnings are going to a take up alongside inflation, assuming the economy isn't contracting at that time.

And then there's also data from the world bank that shows that card penetration is growing at a good clip, which is also a good tail win for the businesses. So in two thousand and seven, car penetration was estimated to be twenty six percent. In twenty, twenty one, IT was fifty six percent and then and is estimated that in twenty twenty six, it's going to be over sixty two percent.

So this is a global trend from cash payments to digital payments. And when you add all these together, master card's total addressing market is growing at around nine and ten percent per year. So there's this highly predictable structural growth that they're really benefiting from.

Then if you wanted, we could also get a bit more granular and look at some of these individual markets. For example, india, they only have around five to six percent of the population using credit cards. And IT seems like in some boy's big, big markets, there's a significant running away for growth in digital payments and play like india and other emerging markets and also likely see some moderate growth in develop markets like the U. S. That's largely removed cash from our society to a large extent.

List in addition to the core business with the payment network. I also think its important to outline their value added service businesses. This segment makes up about thirty eight percent of the net revenue, so it's clearly a major value added for the business.

But on top of that, it's actually the fastest growing segment of the business. So it's going out about eighteen percent versus just seven percent for the payment network. The value added services segment is composed sive three primary services.

So the first one is cyber and intel gent solutions. The second one is data and services solutions. And the third one is processing in gateway.

The first section here, cyber and intelligence are clearly quin ty, very integral to massacred ds diode ted services. IT feels like monthly, weekly. They're some sort of cyber attack on a specific company or on a bank.

So clearly, the payments, whether that's an issue or just the payments network, are very ripe for hackers ers to try to attempt to steal money from. But you know outside of stealing money, there's otherwise k which people that get their identity stolen or get hackers going in to systems and taking millions of people identities or personal information. So let's go over a little bit of what master card does with their value added services to help and prevent these types of issues.

So they have what they call a multi layer approach. So let's go over some of those layer. So the first one here is a prevent layer. So this is the kind of first layer that they've designed that helps protect against infrastructure devices and data attacks.

So they've ve also created a technology called master card sateen net, which helps protect financial institutions from real time attacks that are present on the network, but that these financial institutions might not actually be aware of until, after or until it's too late. So the next section is their identity layer. So this layer basically helps verify the identity of the people that are using the payment network.

So this includes biometric technologies, things like fingerprint, face and ice scanning. So this also includes behavioral user data assessment technology to help verify online purchases from cars and mobile vices. A few years ago, there was actually a gas station close to my house, and my car was compromised twice there.

So need to say I just stop going that gas station. But I was really interesting because I actually had no idea that my car was compromised. My bank ended up calling me multiple times, and usually that I just wouldn't even bother filing the call because usually it's just some sm artists.

But they they basically asked me on the phone, hey, did you do these transactions in all these like little of the nowhere place in the U. S. And I told them, no, I had been in the us.

In ages. And so they knew that basically, they told me what they do is they start with these really, really small transactions. I even know what they were buying. I must be like five cent candies at a grocery store or something like that. And then they would eventually go up higher and higher.

And I guess flow process behind that was that, I guess the processor is would have a harder time seeing that this was a fraudulent, but they picked IT up right away. And I did have to pay any money that the people store for me. So the next layer is the detect layer, which is just used to stop and spot fragile lent transaction once detected, which is kind of what I just want over.

And then there's an experience layer. So this helps speed up transactions and differentiate between real and fragile and customers. This obviously is very impacted for the e commerce industry, where they get tons of fraud and dispute management issues.

So additionally, mastercard uses artificial intelligence and data analytics to help provide really interesting information like risk assessment, which helps pay the payment ecosystem, ensure security across all five of their layers. So another really interesting thing about mastercard is that there are so confident in their ability to keep the payments ecosystem safe. And IT offers what he called zero liability benefit.

We're basically the consumer bears no responsibility for counterfeit or fraud or loss card losses in the event of fraud, which is what I just went. So the next section I want to over is the data and services solution. So master card can provide a variety of services in the data services solutions segment, such as insight and analytics, which cover things like key performance indicators.

Specifically for financial solutions, they offer consulting and innovation. This signal allows master cards customers to improve their business performance by taking advantage of safe master cards knowledge from their treasure trove, I would say, of data that they ve collected. They do some marketing services.

They also work with the issue and the merchant to provide kind of loyalty services. So with regards to the issue, obviously, master card has this really scalable rewards platform. And so most people who use credit cards are familiar with these platform.

So mass card actually puts the infrastructure in place to help scale these up from maybe the small bank to a larger bank or as you add or more and more users of your card. So the last value added services are processing and gateway. I think this area focuses more on the payments value shame.

So the payment gateway can be used to help e commerce merchants process, cure online and in that payments. And then their mobile gateway helps facilitate transactions from mobile devices. And obviously, all over the place you use a credit r, you can go around phone.

So this section is very, very important. You know, seeing as cyber security is only growing as a problem, I think that probably that segment of the value added services is. Probably the most significant growth driver for the business going forward.

I ve looked at some of their previous conference calls and documentation is kind of hard to see how much value each of the segment individually contribute. So I think the best way is probably just to look at up as a whole, which is what master card kind of displays in its documentation. So since twenty twenty, this segment has grown revenues by about nine percent.

So very, very nice tail in for the company. And then just to compare that the payments ts network revenue has grown fifty percent over the same period. So in addition, the cyber security, I think you kind of need to consider all the data that a master card is collecting.

It's obviously really, really important data. And I think mass car knows that, that data would be very, very powerful in the hands of the right issue or the right merchant. So they've done a really, really a good job that look like basically monitise ing the data to help their customers some more, which then creates transactions for master card to process and then praise more profits for them.

yes. I mean, I think there's a lots of like about this business, but one thing I think is certainly worth highlighting as they don't necessarily need to invest that much capital to continue growing because they have all this digital infrastructure in place that's really ready to continue to enable the growth of digital payments. So we talk a lot on the show about what's referred to as return on incremental investor capital, which is essentially now the return on investigation.

But how much of a return is a company of getting when they reinvest new capital that they're getting from, say, net income? So when we look at, say, a physical business like costa, for example, costco is onna need to invest a certain amount capital to build a new store and perhaps they're gonna twenty percent return on and criminal capital or whatever the number is on that investment. But for a company master card, there's presumably so much growth that lies ahead for them because of their more and because they don't need to invest on the capital for that growth to actually take place.

So one might think of a lot of their growth just coming organically, which comes with a very high and criminal return on capital. And I think another way to frame IT is that there really isn't much of an additional cost for then the process, the additional payment. That's why we seen the margins expand over the years.

And it's hard for me to imagine that not continuing going for maybe not to the same extent, but at least growth in revenues, continued margin expansion. So I am revisited mark liner's letters to shareholder. He is the president of consolation software, and that's a similar reason why he liked vertical market software businesses.

So these types of software businesses could essentially grow with no capital investment. So IT just directly adds to the intrinsic value of the business in this expansion al type manner over time when he fact in organic revenant growth, even if it's just two, three, four percent a year. And he compound that over, you know, a decade, that substantially adds to the value of the business.

And then with relation to the value at its services, you just tell there IT shows that this massive company is willing to continue to elevate, continue to widen their reach in the payments ecosystem. You just see so many times these big, big corporate american companies just resting on their layers. Once they get a big advantage, they just sort of have that cash cow and sort of take IT for granted.

But I think mass garden VISA have shown this interactive ability to just keep investing, keep growing and keep just adding value to their customers in the realm of value at its services, cybersecurity, fragile ent protection and what not. And because this business is just so cash generative, they're able to continue drawing E P S around fifteen percent per year in addition to returning so much capital back to shareholder. So in twenty twenty three, they generated around twelve billion dollars in cash flow from Operations.

So nine billion of that went toward Sherry purchases. Around two billion was paid on dividends. And i've just found IT incredibly rare where you have a business that generates so much cash, but they're able to essentially keep growing and then alongside that, essentially return a vast majority of that cash just straight back to shareholders. So yes, one thing to grow low amid single digits just with minimal very investments, but to do that fifteen percent over a long period of time is quite a special business and just points to just how strong their mode has been. At least today.

I can bullier gw if you claim in the problem is since this business is so good, you have to also understand what are the possible risks involved with owning a business like this. And I think there's quite a few risks. And if you feel like you understand them really, really well and maybe he doesn't matter to you, but let's go over the risk because they're certainly awesome.

Will begin with regulatory risk because I think both you and I probably agree that's probably the biggest rist of the entire business. So there is many different regulatory rest at this business. So the first one here is the kind of regulation within payments.

So central banks, regulators worldwide, have rules, very specific rules, that oversee the payments industry. So regulations, they cover a variety areas, consumer protection, cyber security, business conduct. On top of that master card is in all these different countries.

And different countries also have different rules, regulation. So you can get kind of model just kind of give you example of some of the regulation this area. In june of three, there was a build up pass that directly targeted master card and VISA.

This bill was in the united. The bill proposed that both of these networks could not be enabled on the same card. So this would mean that an issue couldn't use VISA and master cartier processor.

They could only use one of them. And so this was specifically to allow other smaller regional payment network to serve as a valid second option. So the next regulatory framework, here's within the interchange fees.

So interchange fees basically exist to ensure that the payment network doesn't become too expensive, and obviously, they have to be regulated. Otherwise the parties in hero probably keep on increasing those fees. So this areas is highly scrutinised by regulators.

So in the U. S, they have laws that cap debit inter change fees, but there's actually a proposal going on right now to extend these caps to credit interchange fees as well. In the eu, they have cafs for both credit and debit in a change fees.

So master card is faced several, several investigations and litigation and settlements with authorities like all over the world. So another particular problem is just preferential treatment by governments. So in some emerging countries like india and brazil, the government has put in place certain tions for domestic payment processors.

So this basically means that in certain countries, not all countries, a lot of countries are perfect fine with them. But there are certain countries, especially completely off limits to a company like massacred. So you look at india, china saw arabic a they basically implemented these data localization laws that require that data be collected and processed within their borders.

So unless mass card is putting their data centers in these countries, which I don't know, maybe they are, I didn't look too far into IT, but I think they're doing specifically to keep companies like master card and VISA outside of their know there similar measures to these countries that are being considered in different countries in the E. U. As well.

Then you have to look at regulations around the issue and the acquire issues and acquire have their own laws and regulations that they must a bye. And these can definitely impact massacred. So for example, there's something called the payment services directive that in the european economic arena and IT requires that financial institutions that use third party processors like mass card have access to data and require even additional verification.

So is this additional verification part that would potentially cause a headache for master card to obviously ease of using a master card? Is that things are easy verifications, easy. And if you add more layers and complexity to that equation, people might do to use different payment processors.

The last one I want to talk here within regulatory framework is kind of privacy and data protection. So this also includes artificial intelligence and information security. In the U.

S. There's laws that Mandate the security programs and the disclosure of specific cyber security incidents. In the eu. They have something, the gdpr, which is the general data protection regulations, which has laws that are continuously changing due to increase da collection, increase data breaches and emerging technologies, which require ongoing in like clay earlier describe, this industry is getting disrupted in certain ways and the industry is constantly changing.

All this is just to say that the regulatory areas and data and protection and information security are very dynamic. And so changes can happen at a moments notice. And this could theoretically have a pretty significant impact on another card.

So why who we already talk to out on our mastery community pointed out that there is also the problem of the consolidation of issue and acquiring banks as a possible risk. So master card profits from the ability to facilitate communication between these two differentiated parties so often acquire in an issue where emerge master card services theoretically might not actually be needed. Additionally, on top of that, some merchants are actually switching to use transactions directly with issues, which then bypass the processing system between the issue and quire.

And I just looking at a couple other possible risks in a global recession. So cay e just have some really good numbers about the future, and I think those are very accurate. But look at what happened during covet.

So during covet massacre, revenues declined by nine point four percent. So bad things can happen. It's probably going to be sure term in nature, but it's is something to keep dry on.

So I want to share one really interesting story that I read about master carton VISA that I learned while researching for this episode is from a book called the paofi. It's is a really good example of some of the rests involved with payment network industries over the years. And talk to the kind of the history of how master card got to where they are today.

So visit master card were privately owned by a consort dia, about twenty thousand banks, including big names that you'll be familiar with, bank of america. So in one thousand nine hundred ninety six, there were a group of retailers that were LED by walmart, series and safeway, and they joined the last suit brought on by nearly every retailer in the U. S.

That accepted VISA master card, credit cards and debit cards. So four million retailers in total, we're seeking about a hundred billion dollars in damages. Now what was a reason for this? Basically, the merchants were just their sick and tired of this honor are all cars rule.

So this rule says that merchants. Cept both master card credit cards and master card signature debit cards, so the payment processors charged the same interchange fees on credit and debit transactions. So the problem here was that many retailers would accept credit cards specifically for big ticket items.

Let's say you went into a tears and you wanted to get something like a barbecue or fridge. They would accept credit cards. Perfect fine with that. But maybe they wouldn't accept credit cards on small ticket items because these smaller ticket items had very, very, very tiny margins and the fees would essentially e away all margin and or maybe even make them unprofitable.

So basically, what happened was that the retailers felt like they are being squeezed just too tightly ly by VISA aster card, and they were trying to fight their way out of this bind that they were put in. So theoretically, they won v masco settled, they paid these retail about three billion dollars and settlement es, they scrapped their honor, all our cars rule, and they actually ended up lowering the interchange fee on signature debit cards. But in the end, the retailers didn't save pretty much any money.

So the car networks, they're smart. What they did here is they basically made acquisitions that reversed all of these perceived changes that they made after the lawsuit. What these mass car did was a bought the U S.

A T. M networks that process these pin debit transactions. Then what they did was they raise the interchange freeze on these transactions to equal those of signature debit cards.

So in the end, the merchants who refused to pay the signature debit inner change fees to be the master card would end up paying the exact same fees further pin debit cards. It's too bad. I guess, if you're looking at from certain parties, you know mastercard has a lot of power and you kind of just have to deal with IT.

All this to say is that master card has risks. I think the fact that they are constantly litigation and that they're highlighted in the media sends a very strong signal. And that signal is that the business has a strong mote. So it's up to you to decide if you think the business has a strong moat, such as you know an alphabet or an amazon, which are consistently pretending like they don't actually have these very, very big motes in their business. Let's take a quick brick.

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All right.

back to the show. yeah. I mean, when the biggest risk based on consensus is relator, that's typically a good sign from an investor perspective because IT typically means that the business is so strong that competitors can get in and steal market share, steel profits and the government has to step in and be kind of the savior in some of these cases, and the company still ends up winning at the end of the day. One other interesting angle I wanted to machine regarding risks is that governments could also get increasingly involved in the payments arena themselves, and maybe eventually even compete with VISA and mass.

And so if we think about CBDC s for example, or central bank digital currencies, these are something a lot of people have talked a lot about in recent years in managers at master card have said that getting widespread adoption tion of C B D C and countries where payment syms already difficult, it's hard to say what impact that would actually have in one problem with any new entry in coming in is that the current payment system in place is just so good for the vast majority of parties and is just so seamless that the new entrant would somehow have to figure out a way to make IT Better for all parties. Why would I want to give up my rewards? Why merchants want to change their processes and all these different companies that are involved in this whole network, it's pretty unlikely unless I some new system is somehow forced upon people.

And I also wanted to be sure to comment on valuation here. So as everybody likely knows, master card is not a bargain or a supercheap company is trades at a steep premium to the broader market for good reasons. But I think that the premium for this type of businesses certainly justified to some extent given how durable the businesses and their long term growth potential. So to buy the stock, I think you have to be open to the risk of a multiple contraction, whether that be short term or longer term, and potential for that to contract closer to the markets average. So with lot of companies we discuss on the show, they typically need to reinvest to grow, and companies like master card can easily grow without any additional capital, as I outlined.

So I think there's a lot of value that investors need to consider with regards to that, and it's hard to think of too many companies that can just keep their existing Operations in revenues going to continue to take up by at least ten percent a year unless a global pandemic hits is one of those great companies that has almost always treated that premium to the market. Despite that, it's still been underPriced the market overall the entire time because it's just continue to improve its fundamental through revenue and earnings, y's growth and what not. And what that said, since kova is actually slightly under perform the market the stocks as but it's actually picked up here in the last year, two after a difficult year in twenty one in valuation for the vast majority of company ties is more than art than a science.

What some investors deemed to be totally reasonable assumptions, others might say, is totally lucrine. So i'll share some numbers here and you can tweak the assumptions however you like, however you see them to be reasonable. And even just slightly tweak some of these numbers can drastically change someone's estimate of the intrinsic value, which is why buffett and gram emphasize having a margin of safety to allow for some room for air.

So the way I typically like to think about on the show is, from today's Price, what sort of expected return what I get because I could say master cards worth six hundred dollars a share, whatever. But when you calculate in trinc value, there's an expected to return that's embedding in that. So someone might say the intrinsic values a thousand, but you might only get an expected to return of, say, five percent based at that Price.

So the expect of return is really what were looking to get as investors. So revisiting the growth that I mentioned earlier. So the total addressed markets growing around ten percent.

So with all the drivers we've outline plus the value added services, I would expect low to mid teens revenue growth over, say, the next five years. And this is driven by the growth in the global economy, inflation, digitization of payments and then the growth in the value added services and other segments. And then we also need a factor in margin expansion because this business just scale so well and then also divided buybacks.

So with all of those factors, we potentially arrive at somewhere the mid to high teens growth and earnings, which seems just amazing given how big this business is. But when you looked at all these factors and all these trends, it's hard to argue you at least low teens growth and earnings maybe in the bare case. And this is just as a reference point here.

In one thing you could also do is create like a bull base and bear analysis with different growth rates and just wait them accordingly however you see fit. So over the past five years, E P S is compounded at sixteen percent, and that's even with the big drop they had in twenty twenty. So yeah, I think of this considered I think somewhere in the low double digit returns for the stock over the longer term is probably where I would expect this to. And you know, there might be a bare case where regulatory really becomes an issue and you see lower returns. Or maybe there's in a bull case where they're really able to execute in these emerging markets and really able to keep accelerating revenue growth a lot that just flows down to the bottom line.

Yeah, they I think those are really realistic saras that you just outline. So if we you want a little bit and look back maybe ten years, I see growth matrix of revenue around eleven percent, earnings per share around sixty percent. So with mascara doing these buybacks s, you can expect E, P, S to continue growing faster than the growth thing.

Thing to think about here is just the Price to earnings ratio. It's fluctuated a quite a bit for a massacre ard. I mean, over the last decade when I looked at IT on fin chat here, I get a high of sixty one times and a low of twenty four times with a business that like this, that's not growing crazy fast. You definitely need to be careful.

I think with the multiple that you pay for the business, if you like the business and you follow up closely, there's gonna be times when the business goes slightly out of favor, let's say, during those times where the Price that you're going to get off and is probably going to offer both the most subside but also the low amount risk. But you have to definitely be very patient. So just to talk about some of the patients that you might need during the depth covered master card went down to about twenty seven times during multiple, which doesn't say something cheap.

But for master card, that's a very, very cheap multiple. And you know if you saw that and maybe didn't partake because you were scared off from whatever you say, you didn't think that everywhere or the U. S.

Would recover as quickly as possible. You we've had to wait about two and half years for master card to come back even close. And I didn't actually reach.

I got about twenty eight times, but IT almost got there. But this is just to say that if you want aster card, don't rush out and buy a petitt a because chances are that you probably will. Like clay, i'd see some multiple construction.

Once you find a great business he really like, you can take a slow to and just add to IT over time. A lot of times when I look at a number of great companies where even in like twenty, twenty one, a lot of these names traded that pretty high multiples.

And now later in twenty twenty four, IT might traded the exact same multiple or maybe just a similar multiple, but the stocks still up fifty or hundred percent every sense sense of the good thing. I mean the right decision for a lot of these businesses. Of course, there's some recency bias with the way markets have turned, how things i've gone for, a lot of these names in which names you're looking at and what not.

But yeah, I think if the companies firing on all ceLinda and executing really well, I think the solution for me is just to be patient and getting into IT and maybe just get into IT over time. But there's a different answer for everybody. So that's primarily all we had for mastercard.

I wanted to turn our attention to different topic here, which is somewhat disappointing to turn back to. So for this segment, we're going to be talking about evolution A B. This is the company we talked about in R Q one twenty twenty four series here.

This is a stock I put a lot of thought into this year. I first took a position around a year ago around the october twenty, twenty three, and it's pretty volatile. But the business performance has been somewhat lackluster just as we seen the market broader market just go up, pretty growth rates have slowed down quite a bit.

A lot of a best's who own IT have said the stocks, Scott, pretty dank, cheap. I believe last time I looked the E V to ebit multiple was around fourteen. Sometimes I pause and just give mr.

Market credit because there is always times where cheap companies, often straight cheap for a good reason. So I was just looking for a way to try and poke holes in my original thesis. And upon doing so, I ended up selling my entire position, evolution A B.

And the primary reason for that is that I would say the initial assessment of the quality, the business, I think, was just off the mark, for my perspective at least. So I sold all my shares at nine sixty seven S. K.

The swedish royer, by the way. And I had a realized loss around the seven percent for my cost spaces before factory and dividends. So I had spoke with an analyst who is connected with some of the Operators that worked with evolution.

I felt a little bit uneasy with 排行榜。 Much evolution relies on growth in asia specifically. So asia is their most profitable geographical segment, and much of the growth in the profits is coming from asia. So initially, when I was entering the stock, I sort of assumed that buying evil was a bet on the global growth of eye gaming.

And I sort of realize just how much their growth and earnings at least, was dependent on the continued growth in asia, perhaps over time, other geography are going to see more contributions to profits such as the U. S. For examples, they open up in more states, but it's certainly not going to get nearly as profitable as asia.

But yeah, as of now, I just sort of realized how dependent the next few years are, are onna be on what sort happens with the asia business. Felt uneasy with sort of concentration rather than being sort of a global play that was sort of difficult because they don't break out their margins by geography. So when I was speaking with this analyst, he informed me that he estimated eighty percent plus ebata margins in asia.

And then when you look at the U. S, they're making either little or no money in the U. S. So I mean, that's just like two totally different types of business models, and there's various reasons for that.

And then we couple that with the fact that some countries in asia are really cracking down on I gaming. And we know that there's some activities happening on these games, but we don't necessarily know how much. And then once that I just started digging into IT further, especially the asia segments specifically, that's when I just decided that wasn't for me.

I probably just should have put IT in the two hard pile from the beginning in since we covered evo and our best quality idea series here. And we both disclosed that we had the positions we had. I really wanted to just share with the company for mortals lio. I would take the small loss and just move on and move on with companies are much more comfortable sitting on for a long periods of time. And again, I have no intention of trying to sway people one where the other maybe IT all allows some of our listeners to happen to the shares are been tracking in the stock to monitor some of these things we mentioned.

Yeah and like clay, i've actually also completely sold out of my evo position. So eo is an interesting business because actually over the past few months, i've been thinking if if I wanted in my portfolio or not. And when clay told me all these interesting things that he found out, he will allowed me to reach out to this analysts as well.

And we had a short back and forth. And I just want to learn more about IT because similar to cay reasoning is that I knew that asia would be kind of a significant gross driver. But the problem with that I was that I didn't actually weigh the strength of the specific geographical part of the business are high enough in terms of its profitability.

So you know, my initial thesis was that the us. Was a suitable area for evil. That's why they had been moving into the U.

S. But that seems like I was just off the mark on this. That was probably a mistake on my part. So as a shareholder, you could technical argue that IT doesn't matter, that evil is making profitable or zero profitable investment in the U. S.

As are just using as a springboard to help pick up new customers and then maybe just take a market share away from other competitors. And you know, I see that argument that makes some sense, but my concern is that I thought the U. S.

Was going to be a significant contributor specifically to the bottom line of evil. If you just look at the U. S. Market is different than the european asia.

And I part the reason why age is specifically and europe to some extension, have these higher margins in in the U. S. Each studio can only serve the state that is in.

So that offers all sorts of disadvantages to scaling IT up in the us, where, as in the eu and asia, one studio might serve a whole bunch of different countries. So you can see how that scale actually makes a lot of sense and would be a value for the company. And so if I thought the U.

S, which I did, was going to be a huge growth river in the future, if the scale advantages can be applied to that geography, it's just unfortunately not as interesting of a business to me because that's kind of the geography I feel like I had the best understanding of and is regulated. So finding out that a lot of its profits were coming from unregular revenue, I wasn't that is with that, I wasn't something that I was really prepared to live with. So kind of like clay to just said, no evil discloses its revenues from both regulated in non regular areas.

But I irony sly believe that profit also kind attract those numbers to some degree. But since unregulated in is adding the lion share profits, evo, I think that the risk rises pretty substantially for the business from my point of view. And on top of that, from a capital allocation perspective, it's not super interesting if you're investing your profits into a segment that has no, zero and negative return.

Is important to remember, return on invested capital utilizes no pet at Operating profit after taxes, not revenue. So if margins are low, no pet is probably low. And if you're looking at that segment from a capital location standpoint, the returns on incremental mesa capital aren't gna be very, very good.

So you know, it's too bad that evil doesn't disclose more about the business shareholders on the episodes we had. I said that this was part of their advantage. I think that they did this on purpose so that they could leave their competitors asking more questions and not understanding where they should maybe move towards to maximum profits.

But I guess now I figured that it's actually a major weakness, if evil, to disclose more information. I think that investors like myself could have a Better understanding of the business. So you know, unfortunately, I just got to take the l here, take IT as a lesson that I should probably only invest in companies that disclose information.

That's very vital. And if they don't dispose a, just take a pass on. So just a few other key lessons I want to share with you from this experience.

Make sure if you're investing in a business that's global, try to break down the profit as best as you can in different segments of the business. Because if you think a business has one business model and can apply that business model globally, that's great if they actually can. But if they can, well, IT changes the narrative and the fundamental of the business.

Kind of take back here on that. You know you can't necessarily attribute scale economies to all business segments of a business if the business model changes based on geography. And then just the last point, just similar. What I was saying is this, you know find out why a business doesn't disclose important information and if the reason isn't good enough for you or doesn't make sense to you, then just put in the business into two heart pile yeah.

the manager piece is just so tough because I think it's easy when you get excited about your name to just start to give the management team the benefit of the dough of not disclosing certain parts of the business, especially when they are executing so well like they have in the past. And it's hard to know it's necessarily a good or a bad thing without speaking with people that are sort of in the industry.

Kind of see first hand what's actually happening with regards to asia, I think a number of people assume that china was a good piece of IT, but that actually sounds like japan and south korea are key markets within asia. So people can go in in see what they find with regards to crackdowns by governments. And then there was a report put out with regards to the use of crypto currencies within the eyes gaming space.

And i'm personally not concerned whether tether, bitt coin or whatever cyp to currency is going to the value in the impacts evil. But what does concern me is the illicit activities aspect of how much of their business is going through these sort of payment mechanisms and to what extend our governments going to be able to shut that down. So yeah, again, just kind of ties into the two hard pilots like I don't know.

So i'm just not that on that part of the body with stocks investing that we need to be right one hundred percent of time to do well as investors. And I believe that I was potentially wrong and evolution when I first bought IT, and that's okay. And no investors going to about one hundred percent.

There's plenty more we could probably say about evo and why we excited, but I think we can leave IT at that for now. I wanted a transition here to our final segment here regarding our master, my community. So to be completely honest, I have to give a lot of credit to why IT and helping me learn more about mastercards and amazing business, why IT joined R T I P master my community over a year ago, and we just met with him in new york city at the person event we hosted there.

And for those in the audience who aren't familiar, our tip mastermind community is the community we put together for private investors, portfolio managers in high network individuals. And it's really to have a place in network with like minded value investors, share stock ideas and meet great people and continue on the journey of lifelong learning. So we vet each member who joins, and we have a short application to ensure that everyone who comes into the group is a high quality member.

And then we just really continued to attract some really interesting people who are able to contribute their own expertise and contribute their unique experiences to the group. And we just recently host our live events in new york that was octo we diners. And so we to see a bit of the city and kind of have a cool experience with our members and create an environment where people can just continue in networking, gets to know each other or so. Hi, I was curious, figured, share some of your highlights from the trip in any interesting conversations you had, if you had any?

absolutely. I had tones in new york. Trip was a lot of fun, and I had many, many wonderful conversations. And when I was thinking about this, I was interesting because, well, I did have many conversations about specific socks and business in general. There were also many attended that were present who are now considered to my friend.

So IT was just great catching up with them, finding out was happy in their lives and learning more about their future plans. So the first night I had a really good conversation about a pharmaceutical business in which one of our members is invested, is called grail in. So he explained the companies, the attributes that he like so much in just a few of the products of the business that he thought had some very high outside.

Now for me, this wasn't really an actual move as I personally don't invest in biotechnology companies, but I really enjoyed the kind of intellectual conversion that we had on IT. And I think I got a much Better understanding of why both he liked you so much and a Better understanding of my own personal version to that industry. So I think this kind of is showed me the importance of being honest with yourself about what you know and what you don't know.

And just remembering that there's just a wide variance in what people know or are interested in learning about. And just because you, me don't think about something, being in our own real house doesn't mean a friend might not also find IT interesting. So this is part of the reason I think, the community is just so powerful.

We have just so many people with the wide variety backgrounds, but the world joined together by our love of value investing. So you know, no matter what people's interesting, there's a good chance that there's someone who might be interested. You might be one percent or point one percent, but just that one small percentage can make a really big difference because you have someone else who's also interested in in about investing, who you can speak about a specific with in those terms.

So another really interesting conversation that I had was with another member in his wife about doister and beautiful m. Now while this obviously isn't n't really investing related, I found IT incredibly valuable as solis m is kind of this philosophico area that i've been highly focus on learning more and more about specifically in 4IT was really nice to hear from another member who has also research stoicism and boot sm more than I have， and find out his own takes on how they share certain similarities and differences. So my main take away from him.

With that, you can pick and choose areas of steel ism that you think you can benefit from the most. You don't have to necessarily adopt everything from IT if they don't ly a line with your values in philosophy. But maybe peer stellick would disagree with the stance.

But I think this is the optimal way that I can personally make servicers work for me. I really appreciated getting the insights from the member who I spoke to. I had many more meaningful conversations, but these are just a few that I think have kept me thinking and will hopefully lead to in your growth along the way.

Yeah, you just can't be establishing these relationships with these. Like many people in person, I just really enjoy learning from the members in our community. And many of them are just so giving of their time, their expertise and their experiences.

I was speaking with a fun manager that in our group on the boat, to our, and to my surprise, he let me know that the is hugely valuable to him and chAllenging his current investment ideas and even getting new ideas. And this is someone who's been in the investment industry for over twenty five years and manages his own fun today. And I just recently booked another call with why IT.

Since we'll be doing another presentation, he'll be presenting brookfield. And we're housing a number of calls with the community. As always, we do at least one a week.

We recently did A U N. A with post dir polikey. And you also did a stock presentation on a recent addition to your portfolio as well.

So the focus of the group is definitely on value investing. We certainly felt so pretty hard on that aspect in bringing in new members. And we talk a lot about individual stocks, but I found that there's just so many ways to give valley from the community.

So I brought on David vegan as a guest back on episode six thirty nine. He runs his own accounting firm, and I found him to be just one of the most disciplined people i've ever met. He just really inspired me to try and implement somebody's ideas he uses in his life and implemented into my own life.

And so we set up a quarterly accountability group where members have the opportunity to grow in other areas, may be outside investing and build these relationships with people where really we can talk about anything, which is pretty interesting given the level of success of somebody, people in this group. And I ve found that just having this open platform to really get to know people in a format that works best for you, whether be in person one and one calls, our group calls or right now, or just even just chatting in dms, I found IT to be so powerful as imagined. And we've also noticed that we've attracted a good number of members who Operate their own family office or family wealth perhaps.

You know, investing just always been a passion of theirs. And they finally exit of their business that they spent years building and now they've committed full time to investing. So there's a number of recent members in that camp for those in the audience who might be interested in connecting with those sorts of people on.

We also have started planning already are metus and omaha. We're going to post a couple of dinners and socials. We're trying to write a number podcast guests that we're chat with here on the show. So it's looking like we're gonna have another great weekend and omaha's anning on booking sort of a city toward to go around and seen a bra front, marry by bus, do some interesting things and show people what on my hats all about. So that's going to be at the first weekend of may twenty.

twenty five. You can tell here that we're planning very, very early. And there's a good reason for that is if you're planning on going, it's tirely recommended that you book here pretty soon because things like accommodations get booked up very, very quickly.

So last year was actually my first time hath way meeting, and I had so much fun. IT was great seeing warn buffet in person, but I think my highlights were actually all based around the events surrounded the annual general meeting. IT was interesting because the numerous members of the T I, P.

Master, my community, actually told me that they had a much Better experience going to the event. As part of kind of the T I P mastermind community precisely because of some of the events that T I P host. Outside of that, we have just WhatsApp group where people can talk to each other.

So outside of those events, they were members who are just contacting each other, being like he lets go, go, let's go grab a drink. And I just kind of makes the whole we can just more fun to be around other people that think like you, especially if you're shy and you do apt at making conversation or connections with other ranking people. So last year we hosted three metres hour exclusive for R T I P.

master. My community, we had an excEllent turned out in the community, I think had a really, really good time chatting with other members in person and expLoring some of the ideas that we discuss on in our community, or stock ideas, or ideas that people pitched. And one event that was kind of fun was just reading as a group to get seats for the annual general meeting.

IT was really fun specifically because the day that we went IT was kind of cold and rainy. And if you want to get a half decent seat, especially with a large group people, you actually have to go pretty early in the morning. So you just going there and being with a group of people where we could chat the whole time and have some good last and learn more about each other was really fun, rather than just thinking if I had to wait by myself in the line, that wouldn't be very fun. So play and I are going to be an oma again in twenty twenty five, and we're really excited to see our community members there already.

So if the comment sounds interesting to you, you can join our weight list that's at the investors podcast dot com slash h mastermind in deal. Hear back from a shortly with more details on what's included with the group. That's the investors pocket stock com slash mastermind or full email.

Happy to answer any questions that I clay at the investor's podcast dot com. I think that closes IT out. So kal, thanks a lot for joining me again here and looking forward the next quarter.

A last thank you .

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