SIP012: Charles Fournier on What The Future Holds For His Ten Largest Holdings - Sure Dividend Sure Dividend

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SIP012: Charles Fournier on What The Future Holds For His Ten Largest Holdings

Returning from episode 3 of the podcast is Charles Fournier, a retired financial services executive who left the workforce early thanks to a high-quality portfolio of dividend growth stocks. My last conversation with Charles on the podcast provided a high-level overview of his investment philosophy. Today’s conversation is a bit different. We spend our time talking in detail about each of his ten largest portfolio holdings. Please enjoy this conversation with Charles Fournier.

Full Transcript Below

Nick: so Charles last time we had you on the show you gave us a really nice broad overview of your investor profile and I thought a nice way to begin today’s episode was to just start with a recap of how you like to invest. And I guess the characteristics that you generally look for in your portfolio holdings?

Charles: all right well once again thanks for having me Nick.

Nick: my pleasure.

Charles: so I’m at the stage in my life where I took early retirement at fifty six two years ago and what I had done was I started investing back in the 1980s and my objective at the time was to create an investment portfolio over a lengthy period of time.

That at one stage of the game I would have companies working for me I would have the little worker dividends that would send income my way so that I could step away from work as much as I enjoyed my career I only live on this earth once and I wasn’t planning on working until I went six feet under.

I tend to focus on large cap stocks and that the companies that we’re going to talk about today these are names that shouldn’t come as a surprise to your listeners. If there are some companies that they’re not familiar with just look them up and you’ll see that these are the types of companies that have been around for a while spit off profits on a regular basis and they issue uninterrupted dividends. There three in here though that had to maintain or hold their dividend during the financial crisis but I’ll talk about that as we go through them.

Nick: awesome and I know that you have very particular thoughts on investing common stocks versus REITs or MLPs or Business Development Corporation. So do you want to touch on that for a moment before we dig into your tenth holding?

Charles: yeah so the reason I like investing in these types of companies as opposed to REITs and BDCs and what-have-you is I like to see a return on my investment as a supposed to a return of my investment. And typically what I found is with the vast majority of REITs out there they’re constantly issuing new units in order to pay distributions to unit holders and.

And when you take a look at the tax forms you’ll see that there’s generally a portion that might be capital gains and then there is a portion where it’s they’ve had to issue shares so it’s not always a return of your investment. And I also like investing in companies that are repurchasing their shares as opposed to constantly assuring new units.

Nick: that definitely makes sense to me so without further ado let’s dig into your tenth-largest holding which is Becton Dickinson.

Charles: Becton Dickinson. So I initiated a position in Becton Dickinson during the financial crisis and what appealed to me was their business segments. So they’re in BD medical which produces a broad array of medical technologies and devices and then they also have their life sciences businesses.

Now subsequent to me initiating a position in BD medical oh and one of the reasons why BD medical jumped out at me is because when I was out on the road for work would often drive by one of their warehouses so I constantly saw the logo and that’s what prompted me to dig into them.

Subsequent to Becton acquiring a position in Becton Dickinson they acquired care fusion and then last year they acquired CR Bard. Now as a result of these acquisitions they’ve taken on some debt their credit rating has dropped to somewhat speculative grade but the profits generated through normal business operations are such that the company or management is optimistic that they’ll be able to restore their credit rating to investment grades so I wasn’t about to give up on Becton Dickinson it’s a great company they’ve rewarded me well over the years with increases in their dividends and the symbol is BDX for any of your listeners who want to check them out.

Nick: now given the change in their balance sheet composition to fund those acquisitions you mentioned would you invest in them today or is it something that you’re willing to hold with the caveat that you’re expecting them to pay down that debt in the near future?

Charles: I would still invest in them today I expect that they’ll have no problems paying down the debt as a matter of fact I just automatically reinvest all the dividends that I get from them.

So it’s not as if I’m buying another 500 shares each and every quarter but the prices come down the valuation is a little bit more reasonable than a few months ago so I guess it depends on your listener’s investor profile. Personally I would buy another few hundred shares.

Nick: now your ninth-largest holding is basically tied with Becton Dickinson in terms of concentration to my understanding. So this next company is the Canadian Imperial Bank of Commerce and to my understanding this is a company that you’re pretty bullish on a company that you would buy today so what are your thoughts on CIBC?

Charles: so CIBC I worked in the Canadian banking industry for a number of you as I started off my career in the early 80s with Bank Montreal worked for them for four years went back to university for my MBA and then joined the Toronto-Dominion bank worked there for over a decade and then I went over to the bank in Nova Scotia and worked there for about 12 years and that’s the bank that I retired from.

I’m very familiar with CIBC versus large largest Canadian bank and funny enough I rarely go into downtown Toronto anymore but I did go last weekend this week last week I went to see a couple of my former team members who had moved over to CIBC and coincidentally I bumped into a third one who had gone over to CIBC.

I have I actually have four former team members who jumped from Scotia and went to CIBC and one of them heads up the cash management group across Canada for both corporate and commercial so and I had actually hired an employee from CIBC years ago to join me at scotia bank and I met him yesterday so I’m somewhat familiar with CIBC I’ve hired people from there some people that I hired at Scotia have moved to CIBC we used to bump into them all the time when we were bidding on business good bank they there they made an acquisition south of the border I’m sorry south of the border in the state’s last year if they were always a laggard when it came to cash management services.

They were what we considered more of a retail bank but they certainly had a decent corporate presence so I have no hesitation with my investment in CIBC I invested in them in years ago.

Nick: now one thing that stands out about CIBC for the native investors that are listening is that the company kind of persistently trades at a discount to the other peers in the Canadian financial services industry. Why do you think that is and how does that impact your investment thesis for CIBC?

Charles: probably because they don’t have the same kind of exposure as the larger ones such as the Royal Bank of Canada and the Toronto-Dominion bank CIBC used to be solely or primarily in Canada and they were the fifth largest bank by a longshot so if your listeners actually take a look at the market caps for the Royal Bank of Canada Toronto-Dominion bank and Nova Scotia Bank of Montreal then CIBC and then National Bank they’ll see that National Bank is way down there so they’re always playing catch-up.

Nick: that makes sense to me now you’re let’s move on and talk about I guess what’s now your eighth largest holding which is Canadian National Railway I’m going to start I guess by asking you when do you first purchase shares of this company and what made you buy them once again Canadian National Railway that goes back several years also.

Charles: the reason I bought them is they don’t make they don’t make any more class-one railways anymore back in the early 80s I think there were roughly 40 or so now you have well Berkshire Hathaway bought Burlington Northern Santa Fe so that takes out one of the publicly traded ones but you’ll have Union Pacific Kansas City Southern.

and in my mind I know I knew my mind would draw a blank when I when I started rattling them off you have Canadian Pacific and you have Canadian National Railway and you have a couple of others down in the States you don’t you don’t get new railways that just spring up all over the place it’s not like other industries the the cost of setting up a railway is astronomical. So Canadian National Railway is one of the most efficient railways it their operating ratio is typically well below its peers they have a presence in Canada from coast to coast and they also go down into the States.

One of the challenges that they’ve had lately is that they have really upset their customers in Canada especially the grain farmers there is a lot of animosity that the grain farmers have with Canadian National Railway right now.

But they’re trying to repair that through the reason why there’s so much animosity was one there weren’t enough locomotives and there were a lot of Engineers that retired and were not replaced.

But meanwhile the grain farmers are still producing grain the stuff is sitting in the silos and they have no way of getting this stuff to market. So the Canadian National Railway has pulled back in price from a few months ago so if any of your listeners are interested in looking into a railway. They’ll fix their problems but they’re typically one of the most efficient railways in North America.

Nick: now this animosity from the railways grain farmer customers is this related in any way to the departure of CN CEO a month or so ago?

Charles: yes yeah so I guess he was tired of being in the fire so he jumped out yeah.

Nick: interesting yeah he was not on the job very long because I remember when he was appointed it was maybe two years or so ago.

Charles: yeah that doesn’t that doesn’t give you a whole lot of comfort does it?

Nick: no but I mean I’m sure they’ll find the right person for the job it’s a big enough company that they have a really deep pockets to search for the right person.

Charles: oh absolutely.

Nick: now speaking of deep pockets you’re next you seventh-largest holding is name that’s going to be known to essentially everyone who listens to this podcast. Its Walmart so tell us about your Walmart investment thesis and what you started with this company.

Charles: well some of your listeners are probably rolling their eyes right now and they’re going oh geez Walmart here’s another person who invests in Walmart I mean why not invest in Walmart?

Here’s a huge company that is adapting to the changing retail environment people make fun of Walmart sometimes I don’t care. It makes money its services millions of clients they’re making a big push in to compete against Amazon.

They’ve stubbed their toe but they have smart people they’re they’ll adapt well. Walmart got to be where it is because they did a number of things right and every once in a while a big company will stumble a little bit but if the management is good they’ll turn things around.

I have a whole lot of confidence in Walmart that they will be able to tackle Amazon and all the online shopping. People thought that the acquisition of jet would be the be-all end-all for Walmart. When they did that I went what it’ll be a learning experience and the retail environment is changing so rapidly that you have to be evolving and I’m confident that Walmart is in a position where they’ll continue to be one of the major retailers in North America.

Nick: now one of the challenges with investing in a company that is the size of Walmart’s this is a company that does something like four hundred and eighty billion dollars of annual revenue.

One of the challenges here is how can the possible complications what do you see as the major drivers of growth for Walmart moving forward?

Charles: well on online shopping and prices of goods just naturally increase efficiencies yeah when I was working we dealt with Walmart and we saw all the things that they were looking at what not all the things but we saw a number of things that they were looking at doing to become more efficient take out costs from their processes they’ll find ways to make money.

Yes they do squeeze their suppliers but at the same time their suppliers still make money so Walmart just continues to find new ways to grow. They’re not in every country in the world there’s still opportunities for them out there.

400 billion dollars sounds like a lot it is a lot of course but there’s still opportunity for them to grow and then just inflation if you have 2 percent or 1 percent inflation every year 10 years out that 400 billion will be more than 400 billion.

Nick: absolutely do you have any thoughts on the quality of Walmart’s balance sheet?

Charles: I have I have no problems with the quality of their balance sheet and then whatsoever and I haven’t looked lately to see what they’re rated but they have they have a balance sheet where I can put my head on the pillow and sleep well at night.

Nick: balance sheet discussions are a great way to segue into our next company which has operated through a stressful operating environment over the past three years or so and this is your fifth sorry sixth largest holding is energy giant Chevron so what’s your investment thesis on Chevron Corporation?

Charles: well they’ve had their challenges that would probably be an understatement it’s the nature of the industry is that it’s cyclical and people talk about the advent of the electric vehicle and some of these oil and gas giants maybe not being nearly as profitable going forward.

they don’t just generate the chevron doesn’t just produce products that are used in the automotive industry if I had to worry about an energy giant it would be some something like in out of Italy I invest in in Exxon, Total, and Chevron.

I haven’t I haven’t gone into Shell or BP or any I’ll stick with the larger ones they’ll be able to adapt it’s a cyclical business. They have reserves that will last several years into the future.

One of the things that I’m always concerned about in this industry is the environmental damage that they do and that some ethical investors out there would probably never want to invest in a company like Chevron.

But I am concerned about the environment but at the same time I have to put food on the table I’m retired.

Nick: absolutely what kind of upside do you see in a company like Chevron has oil prices continue to mean revert to prices that are more in line with their historical averages?

Charles: I can see their stock price increasing and a restoration of their the typical kind of dividend growth that we used to see I think for the last couple of years we have seen nominal dividend growth.

In in some cases some of these energy giants have had to resort to the use of a debt to service their dividend and some people would say well isn’t that kind of crazy. Well if you’re an energy giant and a lot of your investors out there have purchased a stock on the understanding that you are going to consistently get a dividend and it will increase.

If you cut your dividend your you’re between a rock and a hard place so I I can see how some of the energy Giants have you use debt to service some of their dividends they’ve cut back on some of their capex and what have you do they’re not fools at the top of the house. These are multi-billion dollar companies and I’m willing to bet that the vast majority of people who are listening to this podcast probably don’t have the same level of expertise as some of the people at the top of the Chevron house.

These guys know what they’re doing so even though they’ve had their challenges over the last few years I’m not really worried that we’re going to see a dividend cut and if anything I think we’ll probably see their dividends rise within the next year or two.

Nick: at one end of the stability cyclicality spectrum is the energy sector which is probably the most cyclical sector within the stock market and at the other end on the most stable side is healthcare. So there’s no healthcare company that’s more well-known than Johnson & Johnson which happens to be your next largest holding what can you tell us about JNJ?

Charles: well I like safety. So that’s why I own JNJ; and Microsoft the only two triple-a rated companies out there. Johnson & Johnson has been around for eons I’ve dealt with them from a work-related standpoint I that they have smart people they’re they are constantly acquiring companies they have deep pockets.

It’s the kind of stock where you can expect growth you can expect growth and your dividend you can expect some capital gains and you’re not going to wake up one morning and turn on a news network and find out that the company is gone under.

It’s just it’s if you’re if your listeners are looking for a company with some consistency Johnson & Johnson is the epitome of consistency just don’t expect it to be shooting at the lights like a junior company where there’s their revenue growth is in the double digits every year. The company’s so darn large you’re not going to get that kind of growth.

Nick: now Johnson & Johnson has this pretty remarkable statistic that they always share in their investor presentations where they say I’m not sure what the exact number is I think it’s 33 or 34 but they say we’ve increased our operational earnings per share for 34 consecutive years. And that’s most companies haven’t even increased their dividend for that long so there’s definitely a lot of stability there.

What do you see as the main driver of growth for Johnson & Johnson moving forward?

Charles: I see I see all of them as driving growth but I know that they did an acquisition a sizable acquisition within the past year and then the name escapes me.

Nick: it’s Actilion I think.

Charles: yeah so obviously if you have bright people at the top of the Johnson & Johnson house that are investing I think it was the acquisition something like thirty billion dollars or whatever.

Nick: yeah I think so and it was a Swiss company that got absorbed into their pharmaceutical segments

Charles: if you’re spending thirty billion dollars to acquire our company I think that’s the growth area?

Nick: yes that definitely makes sense.

Charles: so you have I can’t remember the number of companies that fall under the Johnson and Johnson umbrella,

Nick: it’s hundreds I’ve seen that statistic – it’s insane.

Charles: yeah it’s absolutely insane and so you have a bunch of companies out there they’re the cash cows and what they do there is they Channel they channel all their profits up to the top of the house and the top of the house redeploys it as appropriate it’s like a publicly traded Berkshire Hathaway people don’t realize that Johnson is just not one company.

It’s like hundreds of companies and these hundreds of companies channel money to the top of the house just like the Berkshire Hathaway group of companies they channel money up to Charlie Munger and Warren Buffett and these gentlemen deploy it as they see fit that’s Johnson and Johnson but publicly traded well Berkshire Hathaway is publicly traded but what I’m talking about.

Nick: yeah absolutely earlier on you mentioned that Johnson & Johnson is a very stable company but you shouldn’t expect them to deliver double-digit revenue growth like a smaller faster growing counterpart. And that small fast-growing that that really describes the next company I want to talk about which is your fifth largest holding and its name is Church & Dwight.

So by and large all the company we’ve talked about so far are going to be familiar to the people listening and this might be the first exception for a large number of people. So I’m curious as to how you originally found out about Church and Dwight as a company and what made you consider your initial investment?

Charles: well it was it was a company that we banked and honestly I didn’t I didn’t know the name Church and Dwight but I knew Arm and Hammer and so I started looking into the company and I was suitably impressed. If you ask somebody do you have any Arm and Hammer product in your kitchen there’s a strong probability that most people will say yes and as I started looking around it wasn’t just the baking soda that people put in their fridge.

But it’s things like toothpaste antiperspirant the air filter that goes in the cabin of your car the air for the air filter that goes in the engine of your vehicle. I like to buy products from the companies that I invest in can I have bought so many Church & Dwight products. When we had a cat and we needed kitty litter I always bought Church and Dwight kitty litter.

I’m not a cat expert but I didn’t know that you could have so many combinations and permutations of cat litter out there they seemed to come out with different types of cat litter all the time.

And then I when I when I really looked at their at they’re pretty suite of products I saw that Trojan condoms and I went Nick uses tons of Trojan condoms I got to make money from every time that he uses a Trojan condom.

So it goes from baking soda it goes from baking soda to condoms to laundry detergent to Nair personal care products and they also bought Water Pik they have Oxy Clean so if your listeners go take a look at the company’s website this company has been around for eons.

And when I first invested in this company it would have been probably around 2004-2005 somewhere around there their stock has split twice – for one their dividend has increased every year. If I were to take a look at my average cost and I should have done this before we started this call my average cost right now is probably I’m venturing to guess maybe there’s a as we’re talking I’m doing this my average cost on Church & Dwight is $13 and yeah $13 and I bought how close to a thousand shares when I first bought them.

Nick: have you been dripping along the way?

Charles: I’ve been dripping along the way.

Nick: so tell us a bit about their capital allocation strategy because this is a company that is generates tons of free cash flow and they have a very targeted way of redeploying so tell us about that?

Charles: well first of all they reward their shareholders and they’re constantly looking at growing their suite of products when you take a look at some of their investor presentations what they do is they compare themselves to their peers.

Their peers are much larger than them you have the Reckitt Benckiser is the Procter & Gamble’s and what have you these guys know that they can’t necessarily compete head-on. So what they do is they reinvest in their products and like you said they have tons of free cash flow they reward their shareholders they grow their suite of products they buy back shares it’s just and it paid debt well.

They obviously take on debt when they acquire some of these brands but it’s a sharp group of people at the top of the house who know how to strategically allocate therefore their free cash flow it’s a good company.

Nick: do you have any comments on its valuation right now?

Charles: let’s see what its valuation is right now it’s probably come down a little bit it there. Wow okay I’d have to check at this p/e ratio that at 17 and that there must be something in there that’s skewing it low because typically the p/e ratio was in the in the 20s or 30s so I’d have to honestly Nick when I invest in some of these companies everything is on autopilot I don’t spend a whole lot of time analyzing these companies every single day.

I the only thing that I really look at on an ongoing basis is maybe a semi-annual and an annual review of the numbers just a quick cursory review. But I know there’s people out there who look at their portfolio every single day the only reason I look at my portfolio every single day is so that I could see which dividends are coming in.

Nick: it’s a very good point and something that’s important for us to keep in mind today’s digital age. Let’s move on to your next company which is a much more it’s a big behemoth financial institution in Canada the Royal Bank of Canada what’s your investment thesis here?

Charles: if somebody is planning I know you have a lot of listeners who don’t live in Canada and I know that a lot of investors have been burned during the financial crisis because they had invested in US banks. and I guess over the last several years maybe people have started to dip back and dip their toes back into the financial sector.

If anybody is looking for to invest in a solid bank that consistently turns out profits and rewards their shareholders it’s a toss-up between the Royal Bank of Canada and the Toronto-Dominion bank. I’m not saying the others are not great but if there’s a finite amount of money that your listeners can deploy I would start off with Royal Bank of Canada and the Toronto-Dominion bank.

RBC just like all the other major Canadian financial institutions had to freeze their dividend during the financial crisis but they didn’t cut their dividend like some of the banks in in the States. They maintained their held their dividends and after about two and a half three years if they reinstituted dividend increases so Bank of Nova Scotia Royal Bank CIBC and Bank Montreal they typically increase their quarterly dividend a couple of times a year TD Bank does it once a year but their dividend increase is it’s much larger the other banks that I mentioned like Royal they’d increase a couple of times but the growth for each dividend increase is smaller.

Nick: this is not going to be the last Canadian bank that we talked about in this conversation.

So at a high level what would you say are the biggest differences between Canadian financial institutions and US banks?

Charles: the Canadian financial institutions are far more conservatively managed and when I was when I was working in the Scotia Bank during the financial crisis. When things blew up we were cutting off banks that had dealt with us correspondent banks and they knew that they had problems. There were some correspondent banks that would come to us asking us to issue letters of credit on their behalf and we would either outright refused or we and we would insist that they were cash secured.

I don’t think there were any foreign banks that did that to the Canadian banks I think I think the banking industry globally knew that the Canadian banks were well capitalized and conservatively managed.

The Canadian banks are not nearly as big as the JP Morgan’s of the world and JP Morgan is a great bank but the level of risk that the Canadian banks are prepared to take on is far less than in the US.

Now people talk about the highly indebted Canadian consumer they talk about the mortgage or the mortgage levels of the typical Canadian. But a lot of these mortgages are CMHC insured so there is insurance to back up these mortgages and the government introduced tighter mortgage qualification guidelines. So if you are purchasing a home and they posted rate for a five-year mortgage now just pick a number off the top of my head happens to be let’s say 3%. The borrower has to qualify on the basis of the mortgage rate being 5% if you have an existing mortgage and there is a lot of borrowers out there whose mortgages have to be renewed this year and next year.

If you want to switch banks you have to qualify at the higher rate if you want to stay at with the same bank you can you don’t have that same hurdle that you have to overcome. So a lot of borrowers out there would probably like to switch banks but they won’t be able to because they won’t be able to qualify at the higher rate.

So in a nutshell Canadian banks are conservatively managed and yeah they’ve been around they’ve been around for ages and it’s not like the states where there’s thousands and thousands of banks. In Canada you have the big six and then you have some smaller ones you have Schedule A banks and Schedule B Bank Schedule B banks would be foreign banks that have operations in Canada but they don’t do their own clearing what they do is they rely on a Schedule A bank to do the clearing for them.

Nick: so let’s switch gears now talk about your top three holdings and the smallest of these is 3M company which is a manufacturing company in the United States what can you tell us about 3M?

Charles: if your if your listeners don’t know who 3m is I would be very surprised the company has been around for ages it used to be Minnesota Mining and Minerals and thankfully they just condensed that to 3M.

Years ago my daughter is big into barrel racing and the owner of the stables where she boards her horse has been working for 3M for the past 35 years and I talked to him and find out what’s happening with 3m and how business is going so he keeps me apprised as to how business is from their end.

Obviously he’s not at the top of the house so he can’t see how 3M is performing globally but they’re firing on all cylinders. The stock price has come down fairly significantly in the last several months if you’re a long-term investor and you’re looking for a company that is the kind where you can put your head on the pillow and sleep well at night.

I recommend 3M, I’m looking at the beginning of this year it was trading at roughly 250 ish and it’s now down to about 215 and if I am not mistaken there was a JP Morgan analyst who came out last year and said that GE and 3M were way overvalued.

Well he was correct on GE but I think he was mistaken on 3M I would never put 3M and GE on the same level.

Nick: I mean I can definitely support that GE has been a nightmare for investors over the past 12 years or so and 3M has been an absolute gem so they’re definitely a lot of contrast there.

Charles: absolutely and a lot of that comes down to management at the top of the house.

Nick: absolutely I mean General Electric seemed to have a culture that was focused more on quarterly earnings than long-term growth and I would say the opposite appears to be true about 3m.

Charles: yeah absolutely.

Nick: turning back to the Canadian banks for your second largest holding let’s talk about the Bank of Nova Scotia.

Charles: well the reason why it’s my second largest holding is because it was my employer for about 12 years before I retired so I just naturally accumulated a whole bunch of Bank in Nova Scotia shares and I think some listeners would go oh well that was and that was kind of silly you have your income coming from the same company where you have a sizeable portion of your investment I wasn’t really considered a concerned about Bank in Nova Scotia it’s an great Bank.

And unlike its Canadian counterparts who decided that they would expand into the U.S. Bank and Nova Scotia has shied away from expanding in the US. Sure Scotiabank would do business with companies in the States and there were some offices in the States so that the corporate bankers could call on us clients. But the number of officers shrank to the point where there’s only an office in in New York and Houston there used to be an office in San Francisco and I think it was Atlanta years ago but they shut those down.

Scotiabank decided that they would focus on Mexico and South America and the Caribbean actually it they had a larger presence in the Caribbean than in Canada years and years ago. They used to I think they were actually bigger in Jamaica at one time during the rum-running days so and some of your listeners if they go to the Caribbean islands will probably see scotia bank branches.

They’re also big they’re big in Mexico I think they’re number the sixth largest bank in Mexico I’m just going off the top of my head they are in Colombia Chile Peru not Brazil that’s not a great environment to be in Argentina that was a that was disastrous for scotia bank actually scotia bank employees had to flee the country otherwise they would have been arrested and this that goes back oh my god I can’t remember how many years I’d probably in the 1990s.

Scotia Bank as has done well they have a presence they have a minority interest in Tana Chart Bank over in in Thailand I think it’s about a 49% interest they tried to expand in mainland China and found it was just way too difficult too many regulations and restrictions. They had a 25% interest in one bank and they were trying to acquire another minority interest in another bank. But they just knew that they would never be able to own a bank outright in China so they just pulled up stakes.

So Rick Wole used to be the CEO and was replaced by a gentleman by the name of Brian Porter – totally different personalities at the top of the house so that has created a little bit of turmoil within the HR ranks. A lot of people have jumped ship and gone to work elsewhere they just didn’t like the change in the culture. But the bank is still very successful spending tons of money on technology.

When Brian Porter came in as CEO he realized that Scotiabank had to unless you spend money on technology in this day and age you’re just going to go the way of the dodo bird. So the amount of money that the Canadian financial institutions spend on technology is mind-boggling it’s probably nothing near what the American banks spend. But it’s significantly in in the billions of dollars on an annual basis. And then the other fastest-growing area within the bank Canadian banking industry is cybercrime and fraud prevention.

Nick: that definitely makes sense I mean it’s one of the biggest concerns for most financial institutions nowadays and businesses in general as cybercrime just like you said.

Charles: oh it was just it was unbelievable how many times the bank would have to well they have all sorts of security in place but it was many times a day where their their security precautions were keeping people out of the systems.

It was it was constant you I talked to the technology folks and I think they probably aged faster than most other people in other areas of the bank. You’d look at them one year and then like three years later you go it’s only been three years and you think to yourself why do you look 10 years older.

Nick: it would definitely be a demanding part of the bank could work and now speaking of financial services and technology I think this is a nice segue into your largest portfolio holding.

Which is Visa which kind of lies directly you’re not the at the cross of finance and technology so what do you like so much of a Visa that is I guess the impetus behind making it your largest portfolio position?

Charles: so I if Visa is a new name to any of your listeners they’re living under a rock. Everywhere you go you’ll see Visa so I invested in Visa about a month after its IPO and I bought a few thousand shares. so now the average cost is about 14.75 and I’m looking here that the price is a hundred and twenty-one and people just think about Visa cards being used when you go to a retailer and you’re buying stuff. But there’s all the online shopping and they bought Visa Europe so that that that helped their business.

But I was speaking with one of my former team members who went back to India for a four week holiday last November and he said Charles you are not going to believe this I was in the middle of nowhere India and it used to be that vendors if you wanted to buy fruits and vegetables from them you would pay cash. Now you pay through a platform that uses Visa or MasterCard as the backbone and you’re buying a couple of bananas and you and they’re using Visa related products.

People think about Visa being in the more developed regions of the world. But Visa is constantly coming out with new products and services that are being used in regions of the world that you would never think they would be that Visa would be.

And the other thing too is when I had headed up the corporate cash management team at Scotia we had a group that dealt with the commercial card and we would deal with large companies from a procurement standpoint instead of sending out checks or electronic funds transfer would use the commercial card.

They would buy sometimes hundreds of millions of dollars on an annual basis from vendors so they had negotiated contracts with these vendors and if you had an employee who needed to buy something from this vendor they would use their commercial card. And so you would get great reporting which could be fed into the company’s system so you didn’t have to key punch things.

And then based on the annual spend the company would get a rebate so sometimes these rebates you would be giving the client a seven eight figure rebate on an annual basis.

Nick: that is compelling.

Charles: it is compelling so if anybody out there looks at Visa and MasterCard and goes oh they just seem a little expensive right now honestly give you a head of Shake are you investing for two or three years down the road or are you investing for twenty years down the road if you’re investing for two or three years down the road.

You shouldn’t be investing in equities you need to have liquidity and you probably don’t want to encounter a market downturn. If you’re investing for fifteen twenty years down the road and you’re looking for a solid investment Visa and MasterCard. Yeah there’s Discover there’s American Express but they they’re just not the same.

I would love it if China Union Pay were publicly traded but it’s not so I just decided to go with the top 2 it’s just it’s what I typically do with some of the some of the industries that we invest in I’ll pick a couple of really good players in the industry and if business switches from one it’s probably inclined to go to the next largest one. So I may as well have a position in the two largest one so for example our own Pepsi and our own Coke I own Visa I own MasterCard.

Nick: the Canadian banks definitely share this characteristic as well.

Charles: yeah except I just go with the big five.

Nick: yeah exactly it’s an oligopoly at its finest.

Charles: it is.

Nick: well Charles I think this is a great place to wrap up. Thanks so much for taking some time to chat with us today if our listeners want to learn more about you and what you do where can they find you?

Charles: they can go to financialfreedomisajourney.com and III welcome feedback and input and suggestions on companies to write about. I’ve recently written a couple of posts that were suggested suggestions from readers. One was on West Pharmaceutical and yeah I just finished another one before I came on the call with you on Ultra Industrial Motion Corp they’re looking at doing an amalgamation with four divisions from it used to be an entity that used to be part of Danaher.

And what happened was Danaher spun off part of its business into a company called Fortiv Corporation and Fortiv at the beginning of March both Fortiv and Ultra Industrial Motion announced their intent to amalgamate for operating companies within the Fortiv group of businesses and so I just wrote about them.

I thank you very much Nick it’s always a pleasure to speak with you and wish your listeners all the very best.

Nick: the pleasure is mine. Thanks again Charles.

Charles: all right Nick, take care.