If you want to bring together people who absolutely hate each other (like me and the readers of this here webblog), just bring up the TOTAL RIPOFF which is the power company. You’ll have everyone nodding in agreement in no time.
The power company, obviously, is the worst entity on the planet. If they just charged you for power, it wouldn’t be so bad. We all understand coal needs to be burned. I just so happens such a thing makes power. I’m still pretty sure we’d burn coal anyway, since all the carbon is good for trees.
The big issue is with all those GODDAMN HIDDEN FEES. Distribution charges? WTF are those? Transmission charges? Isn’t that just another name for distribution charges? Local access fees? Uh, no. I already pay my taxes, thank you very much. The Screw You Tax? I KNOW THAT DOESN’T EXIST BUT I’M STILL MAD ABOUT IT.
Whenever I encounter somebody bitching about their power/gas/whatever bill, I always have the same response. “If the power company is ripping you off so much, then it must be a great business. You should buy shares in it.” This is such a great response because it shuts them the hell up a full 98% of the time. You’ve outfoxed them and even if they don’t believe you like hell they’re going to enter into a boring conversation about the power company’s stock.
Don’t just dismiss my pithy comeback because there’s a really important truth there. The most hated companies make the best investments. You should position your portfolio accordingly.
Let’s brainstorm here. What are the biggest ripoffs you just can’t live without?
- Cell phone
- Banking fees (including interest)
- Movie theater popcorn
There’s probably more, but you get the idea.
How does a movie theater get away with charging $18 for a popcorn/soda/candy combo? How do those rat bastard telecoms get away with charging Canadians way more than anyone else for cell phone data? It’s because they know they’ve got you. If you want to swipe right on the Tinder, you need that data. And if you go to a movie, only a communist goes without that delicious popcorn.
This is what smart people call a captive customer. These companies know they have you over a barrel and will make you pay for it.
You can get mad about this or use it to power your investment thinking. Even though there are plenty of companies willing to sell you power, there are only a few that own the underlying infrastructure. As you can see, it’s been a pretty good investment.
How about the company that provides me with mobile data? Yep, that’s done well too.
How about Canada’s largest banks? Oh baby, they’ve done well.
Note that all of these returns are before dividends. Most of these stocks yield 4%+ annually, meaning a 400% return over 20 years turns into a 500-600% return.
This doesn’t work every time, unfortunately. I talked about Altagas a couple of years ago, saying you could invest about $18,000 in it to generate enough dividends to cover your gas bill. This investment is down about 50% since I talked about it, and it looks like the dividend is ripe to get cut.
Diversify, yo. That’s always the lesson. Not every ripoff company will be a good investment, but together they make a pretty good investment portfolio.
It’s all about competition
Unfortunately, successful investing isn’t just about the companies you hate.
Let’s look at another example, grocery stores. Those rat bastards are constantly raising the prices on all sorts of stuff. Remember when 90 pounds of flour cost a nickel? I do because that was only a week ago. This is how quickly flour prices go up.
I’d argue it’s not a good idea to put any of your investing dollars into a grocery store stock, even if you hate the damn place. Why? There’s just too much competition in the space. It’s hard to stand out when there are about a dozen competitors who use both physical locations and online shopping.
Here’s my rule of thumb: if someone can make a company’s life miserable using just money, it’s probably a poor investment.
Any chump can open a store. Getting into the oil business is as easy as finding the stuff. Manufacturing simple items is a pretty easy business to enter. No bread producer cares where their grain comes from. And so on.
Compare that to businesses with a far better barrier of entry. You need government approval to build a power plant. Most cities only have one airport. Getting shelf space at the grocery store is a difficult endeavor. And good luck making a dent in Canada’s banking monopoly.
See the difference in the two types of businesses? One kind can be disrupted fairly easily with money. The other has a built-in competitive advantage.
The reason why Canada’s most hated companies can charge such high prices is because they all have this advantage. It’s what you’re looking for as an investor. It took me years to figure out just how powerful this is. Don’t screw up like I did.