An Intriguing Canadian Small Cap Stock and The Power of Simple Investing Ideas

[00:00:01] This is The Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Braden Dennis and Simon Belanger The Canadian Investor Podcast, welcome into the show. My name is Braden Dennis, as always joined by the illustrious Simon Belanger.

[00:00:26] Dude, I am so glad we punted this recording to a Friday morning, which is, you know, not our usual schedule. So we could bask in the glory of victory after Canada's win against the US last night in overtime. Oh, I was so relieved, man. Just like with the tensions between the two countries lately and like a lot of pride on the line here.

[00:00:51] I like exhaled for like, felt like 20 straight minutes of just, oh my God, thank God we took that home. Yeah, it's been crazy. I mean, I think it's almost showing up in the hockey game in terms of people's feeling towards the Americans right now. And obviously, I think it's more towards the Trump administration and what they've done.

[00:01:15] And I think you said it to me. I don't know if it was on the podcast, but I've rarely seen Canadians kind of shift their behavior like that and gel together and really be like, yeah, lack of better words, like all in against the US right now.

[00:01:33] Yeah. Yeah. Well, I mean, it's just out of necessity, right? It's like no one's gonna it's almost like that reality shot of reality you get when you're like kind of finishing university or like maybe going off to university when you're becoming becoming an adult.

[00:01:50] And it's like, oh, like the world's not gonna save me. Oh, okay. I get it. Like I have to, I have to get my shit together, you know, like, oh, I'm not gonna be bailed out. Like, oh, this is real life. Like, it's kind of like that. It's just like, okay, we gotta, we gotta be, you know, strong on our own regardless. Right. So, you know, it's definitely been been interesting to see. But my God, I was happy that the Canadians won that hockey game last night.

[00:02:18] Yeah, I mean, I wish I would have watched it. It's, you know, quote unquote exhibition. And it couldn't be more meaningful in some other ways. Yeah, I think it did take a whole like, I think because of what's happening on the political front between both countries, I think a lot of people got interested. Like I personally wasn't that much interested in it until the first game.

[00:02:42] And, you know, three fights within nine seconds. Yeah, exactly. Within the first minute or so, I then I was like, okay, if it goes to the final, I'll definitely pay $25 for the monthly Rogers subscription. So I can watch the one game.

[00:02:58] Too bad it was so late because I get up really early, as you know, at 5am. So I watched up until the end of the second. And then when I woke up, I look at the highlights and saw that they made the mistake of leaving Connor McDavid all alone in front of the net. So that's not usually a great idea.

[00:03:16] I was behind enemy lines. I was in, there's a lot of Canadians at the bar, but I was in a bar in the US last night and a lot of Canadians, but, you know, majority Americans, of course, you know, just given where we were.

[00:03:34] I was behind enemy lines. Like I was, I was representing, man, some of those goals, I was just on my feet and, you know, definitely, definitely happy about it. Anyways, let's go on to the show. We got some good content here for you today. You're going to talk about a specific stock. I did that last week. It's nice, nice that I like doing those.

[00:03:56] Yeah. And then I'm going to talk about simplicity versus complexity in investing. Something I've been thinking about quite a bit. So take us away, sir. Yeah. So I decided I got inspired by you a little bit. And also we had some feedback from people saying like, oh, it'd be good if we talked about small Canadian, small cap companies every now and then, which is something we don't do that often. So granted.

[00:04:19] And I decided to just see what I could find using the screener on FinChat.io, which is kind of nice. I didn't realize. So you just chat with the AI there, which is definitely better than Apple intelligence, but that's a story for another day. Quick jab, quick jab.

[00:04:38] Quick jab. And we, you know, we can always talk about that a bit later with their new iPhone release. But so I asked it to do a set of criteria, really focusing on small caps. I wasn't looking specifically for Canadian small caps, but I was going to put a preference on that if I had several options to look at.

[00:04:59] So I did less than 2 billion in market cap, could be Canadian or US revenue growth of at least 10% on a compound annual growth rate over the last three years, free cash flow positive, free cash flow growth over the last three years. So I didn't put any specific percentage, just some growth there, less than 2% share dilution over the last three years.

[00:05:21] And that's important for me because I think small cap are very susceptible for having a lot of share dilution. Not all of them do. And obviously this is a more mature small cap company, I would say. And then I put a price of free cash flow between 5 and 15. I didn't want the thing to be too expensive. And there was a lot of results with that. I was kind of surprised.

[00:05:45] The one I landed on is actually an Ottawa based company, believe it or not. It's called Callion Group, ticker CGY. So before I start, have you ever heard of this company or no? I have not. What is the market cap?

[00:06:01] 523 million. So very, yeah, definitely small cap, I would say. Not quite micro cap probably on the verge. I mean, obviously that stuff is all subjective, but definitely firmly in the small cap category. Nope. This is brand new to me. So I'll just go over the business lines of the company. This is not a deep dive. I just, I want to show a bit how I use the screener just to give some people some ideas there.

[00:06:29] And obviously this name is definitely intriguing. So there is more research required for me, but their business lines, they have advanced technology. So they offer engineering solution and products for sectors like space, communication, nuclear, agriculture, defense, automotive, government. I include software and products development, custom manufacturing, and full life cycle support.

[00:06:52] They also do healthcare products or offerings. So they provide for primary care, occupational health services, clinic management, healthcare, practitioner support, and psychological assessment services. Oh, I have trouble with that word, but the next one. What the hell does this company do? I'm looking at their like company overview. It's like we do everything.

[00:07:19] Yeah, pretty much. And that's the sense I got. So I'm happy that you're saying that because that is the sense I got as well as they, I mean, it's definitely technology related, but it's very wide ranging. They have some learning offerings. So they offer training services and solution, especially consulting emergency management and advanced training technologies.

[00:07:41] There's some notable products that they site called Callion Maestro ED for military training. And I'll talk a bit more on the military training aspect. And they do provide some cloud migration, IT development, consulting and cybersecurity solution and IT support services. So it's definitely a mix of a lot of things, right? Are they consultants? Because this is just like such a wide range of stuff they're doing.

[00:08:08] I think they offer. Yeah, I think they develop some of their own software, but they also do some consulting work. That's kind of the gist that I got from it. It definitely touches a lot of different areas. So and again, this is the part where I would need to better understand exactly. Is it primarily a consulting businesses? Do they develop a lot of their products and solutions in house? Is it outsource? Is it just consulting that these are all things I'm not sure?

[00:08:35] Again, it's just an overview. But when you start looking at the numbers and that's why I think it's important because the numbers look quite good. For me, the issue here is definitely understanding the business and the path going forward and the kind of opportunity or risk that may lie with them. So like I said earlier, the market cap is five hundred and twenty three million. They have a trailing P of one hundred fourteen, but that is just an outlier here.

[00:09:04] So just take that with a grain of salt, because if you look at the forward P, it's eight point five trailing price of free cash flow. It's eight point two forward price to free cash flow is five point eight. So definitely very low on the valuation metrics and the revenues were seven hundred and fifty three million for the trailing 12 months. So even on a price to sales ratio, still below one. So it's it is very cheap in terms of valuation and the revenue growth rate over the last three years.

[00:09:34] It's grown at an average of over 12 percent. So a lot of stuff to like, at least in the numbers. Before I go on, you kind of get the same sense here. A lot of stuff to like for the numbers, but it's just understanding the business better. Yeah, like when I go on to the financials, I just click on the revenue chart or something. It's like, OK, definitely like nice kind of 13, 15 percent consistently across the board.

[00:10:02] And then I go on their website and it's like communications, cybersecurity, enterprise, I.T., health care, training, manufacturing, engineering and resilience, nuclear. It's like, wait, what? Yeah. What is happening here? No, exactly. And the returns. So it yeah, it's just understanding the business better. That is definitely the thing that would be important here.

[00:10:26] It's probably going to take some time because there's such a mismatch of I mean, it's tech related, but it's just so wide ranging. So it's that is the part I think would be really important for anyone interesting in this name to understand. And for the joint TCI viewers here, you'll see that the total returns over the last five or three years have not been great. Five years, it's basically flat. Three years, it's down 18 percent. And then if you look at the last year, it's down 23 percent.

[00:10:54] There are some really interesting metrics. So like I said earlier, the the revenues are looking quite good. So they've kind of they've really grown over the last 10 years or so. It's a company that has been publicly listed since 2016. And if you're looking at free cash flow, they do pay a small dividend. Dividend is more than well covered by free cash flow. So no issues there. So that looks good.

[00:11:19] And one metric that, you know, and listeners will know that I love is the free cash flow per share that has been trending actually quite nicely over the last five years or so. So it's been trending up. And what's nice about free cash flow per share is you factor in share dilution, where if you just look at free cash flow, especially if they do a lot of stock based compensation, sometimes going to be a bit skewed here because of the dilution. This at least factors that in a little bit.

[00:11:48] So it is a metric I like to look at. If we look at some more kind of numbers here. So the net they have a net debt, 100 million gross margins of 33 percent operating margins of 5 percent, which is on the lower end, I would say for a tech company. Right. Like what's your thought on that? I guess it's the big question is, it's like, is this a services business? This is a software darling.

[00:12:17] Even like some write ups I'm looking at here, too. People are the market has had a hard time assigning multiple to it because they're also confused. Yeah. Yeah. Yeah. Yeah. And it's true. Usually, you know, when we find and I don't know about you, but when I use a screener and I find a company I haven't heard of, even tech companies,

[00:12:37] usually I can get a pretty good understanding by just researching the company and what they do within like 30 minutes max, I would say I'll get a pretty good understanding on that unless it's something very, you know, really out there, really complex. And that was not the case. I'm still again. I kind of understand overall what they do, but I have some trouble assigning like, you know, what's the most important part of their business type of deal.

[00:13:07] And like I mentioned, they pay a dividend currently yields 2.5%. It's 28 cents per share every quarter. It's been the same for quite some time, but it's well covered by free cash flow. So in terms of final thoughts, I think it just goes to what we talked here is just understanding the business better, especially how it'll do with AI and all the advancement that we've seen over the last couple of years.

[00:13:35] But, you know, it seems to speed up more and more. I'd want to understand if their customers are concentrated or not. One thing that I did find, I found an article and I was able to validate that with their news release as well, is I noticed that in Q3 of last year, they had announcement. They said that they were going to be at the lower end of their guidance for 2024.

[00:13:57] So that's a couple of quarters ago because the Canadian Armed Forces were doing budget cuts for those training, those training software or training programs that they're offering. So that is something that I think would be important to understand is are there just a handful of large customers and then the rest are smaller customers that don't impact the business as well. But then when you have larger customers and one of them does cuts like we've seen here, it can cause a problem.

[00:14:24] And clearly the Canadian Armed Forces are probably a fairly large customer because for them to do some cuts and affecting their guidance, it's probably a decent sized customer. And yeah, I think the last thing I would say is just understanding why the performance has been so poor over the last five years when the numbers look pretty good. Like it's it's hard to say. Even the return on invested capital, it's around 6% per year.

[00:14:52] It's not the best I've seen, but it's also not bad. So that's kind of what I found. I mean, for hopefully people kind of, you know, are interested in this name maybe and you'll want to dig more. Obviously, I'm not saying that this is a good buy or not. Just a company that I uncovered using a screener.

[00:15:11] I think the really tricky part about these types of holdco type businesses is I look at the segments, ITCS, which is their cloud migration, IT development, consulting, cyber security solutions, and IT support services. So a lot of like services, a little bit of software, almost kind of like a soft choice, the one that I predicted would go private, kind of similar to them.

[00:15:39] That's the business that's actually probably doing the best based on like the growth of total revenue on which what makes up more and more of the revenue. Now it's at like 33%. It's been kind of the only one trending up in terms of the mix. And it's really hard to value companies when you have all of these different use cases in industries. They serve diversification across different things.

[00:16:04] It's like, okay, that provides some stability, but how do I underwrite the different segments? And it just becomes like a, it becomes a really hard, hard thing to value and hard thing to, what do you assign value to in the business? Like, do I give any credit to this thing that might be decreasing in value? Do I give a lot of credit to the thing that's growing?

[00:16:27] It becomes a sum of the parts analysis that, you know, people would rather do some of the parts on Google and Microsoft than some of the parts on a Canadian micro cap. I mean, it may be a hidden gem, like it may be a value trap because there's some potential uncertainty ahead. Just their overall business, what's reliant on, for example, contracts in Canada versus outside of Canada?

[00:16:52] Could they be potentially impacted by tariffs, even though tariffs have largely focused on actual goods, so not the services parts? But again, it could be a headwind or a tailwind. Maybe it's, they're in a space with their offerings that there's lots of competition, but maybe there's just not a lot of competition for Canadian-based companies. And we start seeing businesses in Canada in the next few years, a bit like we were talking with the hockey game, right?

[00:17:20] Shifting more and more to buying Canadian and choosing Canadian options over U.S. options that would be available, that would be comparable, or maybe even slightly better. But they choose the Canadian option. So there's a lot of moving parts. Especially to private, especially to public sector. Exactly. That's it. So there could be, I mean, it's really hard to say. And again, just understanding the business better.

[00:17:43] And if that's a company that you're intrigued in, make sure you do your due diligence because this was just a high level and it's not an investment recommendation one way or another. It's just, like I said, it's just to show that I uncovered this business that looks like it has pretty good numbers.

[00:18:00] If you just look at the numbers, and I think that also highlights the risk of using a screener, is you have to make sure you can find companies that have really attractive looking numbers, reasonable valuations. But you have to make sure you understand the business. And that's the part that, for me, there's more digging required. Because if you just look at the numbers, it'd be hard to argue to not invest in this company at all, honestly.

[00:18:27] Yeah, I mean, if you just look at the income statement, I didn't really give it a lot of credit. The other segments are, other than health, I would say, the other ones are really, really consistent growers. Really consistent. They're doing a lot of M&A here because they're breaking out organic growth versus acquisition growth. Yeah. Not big acquisitions, too. So I don't know. Maybe they're competing with Constellation software on that.

[00:18:53] But they're probably even on the smaller side, I would think, of acquisition just because it's a much smaller company. Well, Simone, I actually think that this is a fantastic segue into my segment. There you go. Hey, go for it. You're welcome. Because the idea of simplicity versus complexity. I look at that business there and I'm like, I'm looking at the, yeah.

[00:19:17] If I was just an investor who looked at the income statement, I was a quant, I don't care what they do, frankly. No, exactly. I care about number go up. Then that's fine. That is not me. And in investing, there are no bonus points for complexity. I'm going to go into a longer Peter Lynch quote, but he says, the most important thing for me in the stock market or for anyone is to know what you own.

[00:19:44] So no bonus points for complexity in this game. It's something I learned. It took me a few, honestly, it took me years to really learn that there's no bonus points for complexity. And I have a chart here, which is, it's just kind of really an idea more than data, which is, I'll try to describe it for the listeners. It's a U-shaped line. It's a line chart where the line is a U.

[00:20:14] It starts at the top left, it goes down and then comes back up to the other side. So it's a U. And the X axis is experience level. And the Y axis is value placed on simplicity. Basically, what this means is beginners value simplicity. As they gain more experience, they start to go into more complex ideas, complex strategies.

[00:20:37] And then it kind of reaches the trough of complexity in that kind of like, if I'm from zero, if I'm zero, a brand new beginner, I have like full simplicity. If I'm an expert, I got mastery, I go back to full simplicity. So kind of in that like, you know, four to six, you reach this trough of intermediate learning and experience, but extreme complexity, a lot of value on the complex ideas and understanding.

[00:21:06] So the more experienced investors start to go back to extreme complexity because they know the most simple ideas and the simple ones for them to deeply understand for a long time are the ones that actually going to make them the most money. And that's a counterintuitive idea for a beginner, right, Simone? Which is like, it's very counterintuitive idea that's like, oh, actually, the most simple investment thesis you have will probably be the most profitable one because you're going to like understand it. You're going to hold it for the next 30 years.

[00:21:36] That's not an intuitive idea for someone just, you know, maybe opening their brokerage account for the first time. No, no, it definitely isn't. Yeah, it's I think there's definitely a lot of value and simplicity and there's tons of examples out there of very easy to understand businesses that I've done very well over long periods of time. I mean, like Buffett is famous for that. Like there's a lot of his investments. Some are more complex. Don't get me wrong.

[00:22:03] When you start getting into insurance and banking, clearly, if you want to understand those businesses, they are very complex. And I'll try not to go on a tangent because I think a lot of Canadian investors invest in Canadian banks and have no idea how they actually works and how complicated they are. But again, Buffett, as smart as he is, I mean, some of his best investment, whether you look at Amex, Coca-Cola over the years, they're not difficult businesses to understand.

[00:22:33] They're pretty easy. Amex probably a bit more because it is a bank, but still the overall idea behind it is not too complicated. That's right. It's kind of like, you know, true masters of something are able to explain things really, really simply. They're able to break that. You know, that's the as you go further and further down mastery, you're able to take really complex topics and distill them down to really simple ideas.

[00:23:00] That's what makes, you know, great teachers great because they have mastery in the subject, but they're also able to distill them to really simple ideas. And I believe that to be a perfect parallel to investors. And it sounds like I'm like, I didn't even look at your idea before here, before I started the simplicity thing.

[00:23:22] So I think, I don't mean to poo-poo your stock you brought to the thing here today, but I look at that and I'm like, bro, like what? Yeah, it would require time, definitely. But again, sometimes they're the kind of companies that you can get that much more attractive valuation versus like an Apple that comes to mind, right? I think a reason that probably a lot of people, a lot of retail investors invest in Apple is because it's so easy to understand.

[00:23:51] They have the product, they know they make, you know, iPhones, they make MacBooks, they make, you know, wearables and all that stuff. And they know they have a big services segment. I mean, it's not that hard to understand in terms of company, of course. They have complex supply chain product development if you really want to dig in. But overall, I mean, for a new investor, it's a pretty easy business to understand. You don't need to research the company for weeks on weeks to understand what they do. Yeah.

[00:24:19] And there's nuance in this conversation, right? Like there's obviously with more complex ideas can come better prices, right? And so that's where this stuff becomes a little bit more difficult. But I think directionally, I have a note here on how this has a relation to private markets as well, where there's no liquidity. Say, Simone, you start some venture and I'm like, okay, I'll invest. I like the idea. There's no liquidity.

[00:24:48] I'm forced to buy and I'm forced to hold it for a long time. I have a lot of conviction in you because I've known you for a long time and I think the idea is good. Boom. Easy thesis, right? I believe in the founder. I like the idea. I've gotten to know the problem you've been working on in this business for the last 10 years. I'm like, okay, I'm in. Really simple. Like send me the paperwork.

[00:25:12] In private markets where those situations happen, you'll find a trend in privates that the first few investments people make in their career are the very best ones. Because they've been building conviction maybe in that idea for a really long time before they became a private market investor. Or they knew that person who started that venture for a long, long time and knew that they were really special. I think that that's really common for a lot of venture investors. You'll see like really successful ones.

[00:25:41] And you'll look at fund one. So, maybe they're on fund, fuck, I don't know, fund five now. It's been 20 years. It's been 15 years of them doing venture investing. Fund one, you're like banger after banger after banger after unicorn after unicorn. And they're like, they didn't even know what they were. Of course, they knew what they were doing. They're smart people. But like, yeah, they were the they were the mid they were at the tail of the midwit meme. It's like, oh, I love I love the founder. I love the idea. Sign the check.

[00:26:11] Yeah. And while even looking back, right, people are familiar with Dragon's Den or Shark Tank. And sometimes they'll do a look back right at previous investment like a few years down the line. And a lot of them that do well are the ones that are like not that complicated. Maybe they came out with a new kind of beer that just was very popular. Like it's not rocket science or anything.

[00:26:36] But that one just they found a market for that kind of beer and it did well. But it's true. Like if you look at a lot of those ideas, oftentimes it's the ones that are actually quite simple that end up doing well. And even in those shows, I also find like oftentimes there are the ones that are quite simple that are chosen. Yeah. Yeah. Especially because the investor is like, okay, I understand this quickly and I can actually help and I can bring this to my audience.

[00:27:06] Yeah. Okay. I have a quote from Peter Lynch because it's on this topic. And I've shared this on the podcast years ago. I think he has this amazing speech he does at a university. I forget what it is, but it's old. It's on YouTube. It looks very 80s. It's worth watching. So it's kind of long here, but I'll work through it here. Quote, and the most single important thing to me for anyone is to know what you own.

[00:27:35] I am amazed at how many people own stocks that they would not be able to tell you why they own it. They couldn't say in a minute or less why they own it. Actually, if you really press them down, they'd say, the reason I own it is this sucker is going up. And that's the only reason. That's the only reason they own it. And they can't explain it. I'm serious. If you can't explain to a 10-year-old in two minutes or less why you own a stock, you shouldn't own it.

[00:28:01] And that's true, I think, about 80% of people that own stocks. This is the kind of company people adore owning. They make a 1 megabits SRAM CMOS Bipolar RISC floating point IO array processor with an optimizing compiler, a 16-dual point memory, a double diffused metal oxide semiconductor monolithic logic chip,

[00:28:28] and a plasma matrix vacuum fluorescent display. It has a 16-bit dual memory Unix operating system, 4-wetstone mega flop polysilicone emitter, a high bandwidth that's very important, 6 gigahertz double metallization communication protocol.

[00:28:50] An asynchronous backward compatibility peripheral bus architecture, 4-way interleaf memory, a token ring interchange backplane, and it does it in about 15 nanoseconds of capability. Oh, man. The way that he riffed that off, too, in the actual live speech, I was just chunking over my words. It is incredible. Continue on the quote.

[00:29:17] Now, if you own a piece of crap like that, you'll never make any money. Never. Someone will come along with more wet stones, less wet stones, bigger mega flop, smaller mega flop, and you won't have the foggiest idea of what happened. And people buy this junk all the time. I made money in Dunkin' Donuts. I can understand it. There was recessions. I wouldn't have to worry about what was happening. I'd go to Dunkin' Donuts. People were still there.

[00:29:45] I didn't have to worry about low-priced Korean imports. I mean, I just didn't have, you know, I could understand it. And you laugh. I made 10 or 15 times my money in Dunkin' Donuts. Those were the best kind of stocks I could understand. And if you don't understand it, it doesn't work. This is the biggest principle. And it bothers me that people are very careful with their money. They go buy a refrigerator. They read consumer reports. They go buy a microwave oven. They go do that.

[00:30:15] They ask people, what's the best kind of radar range? Or what is the best kind of car to buy? They do their research. And then they go on a trip to Wyoming. They get a mobile travel guide or California. And when they get to Europe, they get a Michelin travel guide. People hear a tip on a bus of some stock, and they put half their life savings in it before sunset. End quote. Ah, incredible. What are your thoughts? Yeah. I mean, it's hard to disagree.

[00:30:44] And I think people that have been listening for a while, and you know my portfolio. For me, a lot of my businesses that I own are businesses that I can... More traditional, I would say. Whether you have a term line that's natural gas, or I have Franco Nevada that's a gold streamer. It's very easy. These companies are very easy to understand what they do, why I own it, and so on. And so I can definitely relate to that.

[00:31:12] I mean, I'm thinking to have railways or companies that are very easy to understand that have performed very well over long periods of time. They're not sexy businesses, but I like what he says. Like, they're businesses that, you know, Dunkin' Donuts specifically should do well in most economic cycles. So he was talking about a recession. And it made me think when you were reading that and that recession part, it's interesting to see the divergence between Tim Orton's and Starbucks.

[00:31:43] Because Tim Orton's struggled a little bit during the pandemic because I think people were not, you know, going there as much in person. But it is actually doing pretty well, decently well right now. And I can't help it think that it's taking some market share, at least in Canada, away from our Starbucks, because people are pinching a little bit. They want to save money. They may still want to grab a coffee on the go. But instead of paying $5 for the coffee, they're like, you know what?

[00:32:11] I might prefer the Starbucks one a little bit, but not at double the cost. So I'm going to go for that cheaper option. And it's just interesting to see the contrast, similar types of businesses, right? In the same, you know, food preparation, restaurant business. And there is kind of divergence in terms of the result when the economy is not doing well. 100%. And I think there's been some brand impairment for Starbucks as well on top of that. But yeah, I couldn't agree more.

[00:32:39] I mean, it just goes back to there is a lot of value in the simplicity of when tough times come, because recessions happen. Your companies you own are going to go on massive drawdowns for reasons that are going to be completely unknowable or really unexplainable at some times why stocks move in certain ways that they do. And, you know, there could be some company that's doing fantastic,

[00:33:09] but some global event happens and it loses 25% of its value in a week. Like this happens all the time. It will happen in the future. I don't guarantee much on the podcast, but the fact that your stocks are going to go up and down, I will happily guarantee. That is a guarantee. That is a guarantee. And I think especially this year, I think you better strap on your seatbelt because it's going to be volatile. And I'm not just saying to the downside,

[00:33:38] I'm saying like volatility down and up because let's be honest, every time Trump tweets something that has to do with like trade or anything, like you see the markets, they swing wildly. So just based on that, I mean, it's been a month. And I feel like the whole year is probably going to be something like that. Yeah. It's like when, I forget who the quote is. I wish I had credit for who it was, but it's like they were getting a question from the audience. Like,

[00:34:05] do you think the market will go up or down over the next like year or two, whatever timeframe was? And he goes, yes, I can say with confidence, it will fluctuate. No, I mean, it's good. And just to your point and what he was saying, I think when you see you have those, that volatility, just knowing the business well makes such a big difference because then you can take an informed decision.

[00:34:33] And sometimes it may be the right move to sell, but you know the business well and you feel confident in selling. And sometimes the right move is to just hold on to the company because you know the company and you're comfortable holding it, even if there's a 20, 30% drawdown. Yeah. Because I mean, when that, when that drawdown happens, it's really easy, whether you're a professional or brand new investor to think, what don't I know? You know, what,

[00:35:01] what is the thing that people know that I don't? It's easy to think like that. When there's a huge haircut on a stock. Right. And if they make a one mega, mega bit SRAM CMOS bipolar RIS floating point IO, right? Like someone came out with a better floating point IO array processor. And you're like, Oh shit. You know, like that's a problem. But when it's something simple or a simple idea, or,

[00:35:30] or even with complex tech ideas that, you know, really, really well, and you just go, eh, it's fine. You know, I have a lot of conviction that this is going to be a better business than it is now in 10 years than it is today. And so those types of just like really simple ideas are the difference between making a lot of money and not it's, it's a David Gardner. I know the Motley Fool gets a lot of flack for their marketing materials. And they put out,

[00:36:00] but David Gardner, the guy who started it, he has this quote where he says, you can't ever get a hundred bagger in your career. If you don't hold a company for it to go a hundred times, which is just like, of course, like, of course, like everyone knows that. But, but when you say it, you're like, Oh wait, that actually, like, you don't think about that. Like, you're never going to have a stock that goes a hundred times unless you hold it for a hundred times.

[00:36:27] And very few people are willing to hold a stock through all the ups and downs for it to go up a hundred times. Like that's not, those are not happening all the time. Those are, you know, once in a career, maybe. If you look at that. Yeah, exactly. Like people, oftentimes you hear it time and time. And again, like, Oh, if you bought Amazon in like 2000, like you would have a hundred bagger and people are like, Oh, well, that must be so easy. Well, when you're actually holding it for that long of a time,

[00:36:55] like Amazon has had massive drawdowns and people will, will point to Bitcoin too, right? Like it's a different kind of asset, but yeah, it's performed really well. If you had it since 2015, congratulations, you've done really well, but you also had to stomach massive swings. And if you didn't understand the technology, I can pretty much guarantee you, you would not still be holding it at this point. So there are just examples. Like people will zoom out and just think it's easy. It's not easy.

[00:37:23] You have to have conviction and know what you own. I'm sharing my screen really quick for joining CI listeners. I just went on Amazon. It's like, what's the drawdown chart since, since being public. So for, for, for people who are watching, they'll see, but if, if not, it's basically just shows every time there's a huge drawdown in Amazon stock. Okay. Stock was down 82% in 1997. And, and by the way, there's a bunch of 50% drawdowns that I'm not even going to mention. Yeah. Just a,

[00:37:53] just a quick 50% that I'm not even going to mention. So down, you know, 80 plus percent in, in 97, it bottomed down 92% in 2001. It fell, uh, 56% in 2006. It fell, I can't even grab this data point, but roughly, uh, 70% in 2008. At a bunch of 30 plus. A bunch of thirties over the next few years,

[00:38:22] down another 55% in 2022, which seems remarkable that those, yes, these stocks dropped in 2022, given their size and stability. Yeah. I mean, I think it was just all the recession fears. The takeaway is that it's going to happen, you know. Exactly. Yeah. It's going to happen. And it's not, you know, it's not easy to hold, but again, it goes back to the point. If you know the business well, and again, it doesn't mean to hold that all cause. It just means that you can make an informed decision.

[00:38:52] Yeah. You're like, I'm in my condo building and I see 48 Amazon pack just stacked up to the roof. And I'm like, yeah, I think, uh, I think Amazon's going to be all right. I'm running like, you know, hundreds of thousands of workloads on AWS, uh, for our company. And I'm like, yeah, I think Amazon's going to be okay. I actually should be a shareholder to be honest. Okay. So to round this out, what I'm not saying is don't have a process. What I'm not saying is don't do your research.

[00:39:21] What I'm not saying is don't have a set of rules and principles. All of those are obviously very important. What I'm saying is I truly believe the fault is, the mistake is mistaking complexity for intelligence. That's the mistake. It's mistaking complexity for intelligence. Some personal examples where I went big brain and failed. Okay. Okay. All these are software acquirers, and house systems, roper, open text, obviously constellation. There are four can they, uh,

[00:39:51] well, roper is a us based one for North American software acquirers. I have owned all four of them at separate times. I have owned all four of them at separate times. And I had all these reasons why I should own other acquirers than constellation software. But all of these reasons. Okay. Okay. Since 2017, constellation's up 800%. Roper's been a great performer, nearly up 200%. Did those other two Canadian names since 2017? Flat.

[00:40:21] And 9% on edge house, 5.2% on open text. Yes, you've gotten smoked by, you know, the index, let alone constellation being up, you know, eight times since then. Right. And so I had all these reasons, you know, like why should own other acquirers? This one's doing this. This one's doing this. I should be diversified. I shouldn't have it all in one company. Thankfully,

[00:40:48] I stopped being an idiot years ago and quadrupled down on constellation, which is just the simple, like the simple investment thesis of why do I own all of these when Mark Leonard exists? Let's take, you have like, you have the hall of famer running the business and then a bunch of like other people running the business, obviously smart people, but like you have the hall of famer. You have the Tom Brady to be the quarterback of your team and you're messing around with, you know, Aaron Rodgers.

[00:41:18] Yeah. Yeah. You're messing around with Aaron Rodgers at 40 plus years old. Right. It, it just doesn't make sense. It's like mistaking complexity for intelligence when it's just really that midwit meme of just like, just own constellation. Like Mark runs the business. And so thankfully, you know, years ago, I just like sold all of it and quadrupled down on CSU and that, you know, that's been probably the best investment of my career all time in terms of total dollar amount. No question.

[00:41:47] So, uh, any examples from your side? In terms of, yeah, I'd have to go back. Uh, Hmm. That's a good question. I know I've, I've sold some, yeah, I would say, uh, square and PayPal. Cause remember I used to own square PayPal, MasterCard Visa. Yeah. And at some point I just said, you know what? I just don't know if a square and PayPal, they have that much of a moat and I wanted some payments exposure. And clearly with my Bitcoin exposure,

[00:42:17] I kind of have the exposure to the alternatives of the traditional rails. Yeah. Rails. Exactly. So I just decided to, to sell those and just focus on Visa and Massacre. I mean, they're not huge positions, but I made that decision. I think it was a great decision. I haven't looked at, uh, square or block recently in PayPal, but I think they've pretty much gone down or trended sideways. And I have sold those like probably three years ago,

[00:42:45] I would say roughly just going on memory here. So that would be my example. Yeah. Another example I can think, you know, for both of us actually is a Canadian stock. We've both owned the Canadian REIT. We both owned, which is this trap can fall in. You can fall into this trap quite a bit with valuation. Like outsmart, thinking you're outsmarting the market with, with cheap stocks, allied property. Yeah. Class A, class A office, class A office, fantastic buildings. They got the best kind of,

[00:43:14] there's some of the most premier real estate in the major markets of Canada. No question. Well run, awesome portfolio, you know, not going anywhere and just thinking this is worth so much more. Like the, the valuation's insane, but then the counter argument to that is like, dude, no one wants to buy commercial real estate stocks right now. Like you're not going to catch a bid anytime soon. Don't overthink this.

[00:43:42] And I think that's another kind of classic example. Yeah. Yeah. I was definitely guilty of that. I bought it when it had a big drawdown and, you know, towards the end of the pandemic, uh, end of 2022, if I remember correctly. And yeah, it was a company I probably shouldn't have bought, but my premise was that it was overdone and that there was a decent, a pretty good chance that it would rebound, probably not to pre pandemic, but enough to make it worthwhile. And,

[00:44:12] you know, after a year and a half, roughly things started, uh, not improving as much as I thought they would. And management was saying is that they would, I mean, not to their fault. I think it's just a very, very difficult environment and something that is exactly that the best experts in the space have a lot of trouble predicting. I mean, even with the tariffs, that thread that we're seeing, I mean, that's probably going to impact an ally.

[00:44:41] They're probably going to see clients that will consider going to the U S and that might not renew when their lease comes up. So yeah, you just, sometimes, you know, you have a good idea and makes a whole lot of sense and it doesn't pan out. That's okay. You sell it and move on, take the loss. And it's not the end of the world. Yeah. That stocks on a 70% John, it pays a 10 and a half percent yield. Can you believe that? Yeah. This was always the low yield,

[00:45:10] high growth office rate always for, for 10, 15 years. That was what it was known on the street for. Probably would still be if the pandemic didn't happen. Yeah, probably. Cause you know, I don't think we would have seen that shift in, in working from home or hybrid work that we've seen. So yeah, it probably would still be trading at those low valuations. Should we riff on that? Or do you want to talk about this question? Yeah, we can continue it. Cause I think this one could take a bit. So I'll keep that for next week.

[00:45:39] It was a good question that I answered on joint TCI, but sometimes I'll get a question. And I'm, if I think it can bring value to other people, I'll answer it on the podcast as well. But I think it's next week is totally fine. Yeah. Well, how about we riff on this for a few minutes and then we'll, we'll end the pod. Do you see Jamie diamonds? I'm talking about speaking of remote work in this office read question here. Did you hear Jamie diamonds kind of off the cuff recording of him talking about remote work?

[00:46:09] No, no. What did he say? Okay. Okay. So Jamie diamond, you know, kind of known as the bankers, banker, present CEO of JP Morgan. Jamie diamonds known as kind of a, he's like the ultimate suit. He's like the boss of suits. Okay. He's obviously a fantastic banker. He's probably the best, you know, he's the, he's the bankers banker. He's probably the best banker. He's the bank. He's the leading the largest bank right now. So in JP Morgan. Yeah.

[00:46:39] And he had just an unscripted recording of him going off. I don't know what it was in a board. I don't know what it was. I, I, I, I'm sure I can look it up, but there's an audio clip of Jamie diamond going off about his thoughts on remote work. I don't have the quote in front of me, but you know, I'm paraphrasing. I've been in the office every day, every FN day. It's a full, like he's, he's not holding back. He's swearing lots. It's a, it's a full, like off the cuff unscripted thing.

[00:47:08] I'm here every day. I'm here on the weekends. Where is everyone? Where is everyone working? You know, we're a bank. We need to be in person. We cannot work remotely. It makes no sense. We have to be in person. Everyone should be in person every single day. And if you're not, you're killing your career. And then he starts talking about how young people not going into that, not going into their office and not contributing and not being in the ethos are ruining their career fast.

[00:47:38] And I have a lot of thoughts on this. And I'm curious to hear, you know, you and I work remotely. I work remotely right now for a month here, but I'm in the office four days a week now in Toronto. So I'm like halfway in between this. I don't know what to think. Yeah. And I'm just reading some of the quotes. And pledge not to accept semi-diseased practices. Yeah. It's pretty outrageous.

[00:48:08] And I come in, you know, I've been working seven days a goddamn week since COVID. Yeah. Where has everyone else been? Yeah, exactly. Look, and there was a lot of blacked out stuff or bleeping stuff in terms of the transcript. But I mean, I get kind of both sides of the arguments. I get going into the office because you create those human connections and, you know, you can come up with ideas.

[00:48:36] And especially if you're looking for career advancement, it's harder to create that over a Zoom call, right? Like even if you're on Teams or Slack or whatever it is, you chat with someone a whole lot. It's just a different feel. So I do get that at the same time. I mean, people are trying to balance work-life balance. So it is something that I understand, especially with a young daughter. And look, if the employee is productive,

[00:49:05] I don't see an issue with them working from, or at least having hybrid, I think, fully from home, unless it's a special circumstance where the person is a completely another country, but they're the top person for that kind of work. And, you know, you're just going to deal with it. The fact that they don't come into the office, but I think for the most part, I mean, if they're a good worker and they're being really productive, I don't see what the big deal is with at least hybrid. Quote, it's a free country.

[00:49:35] You can either work at JP Morgan or leave. Yeah. There's a, there's a, there's this internal petition circulating about their return to office five days a week policy, being like, I don't want to come back into the office. Quote, don't waste time on it. I don't care how many people signed that effing petition. Yeah. I look, I mean, at the end of the day, like if that's how he wants to run the bank. Sure. And I mean, from a bank's perspective, it's also,

[00:50:04] I can understand a little bit more where you have people that have to go in person at the branch and have to be there to serve clients and stuff like that. So it becomes a bit harder to say, well, yeah. Okay. You're fine with fully working from home or fully remote, but then you have people that are coming in. I think it becomes very difficult for leadership to create a balance there. And he's probably, you know, for him, it's like, you know what, this is how we do it. If you don't want to come in, then feel free to, to work somewhere else.

[00:50:34] That's our policy. So yeah, that's kind of, it's also a good, I mean, good, I mean, I don't know if it's the right word, but it's also a effective, I'll call it effective tactic for employee turnover. If you, if, if the company wants to, you know, yeah, remove 10% of the workforce, whatever it is. If people are like, okay, I don't want to come back into work. Okay, perfect. Like that, that, that works for both of us, you know, if you don't come back. So it is an effective way also to,

[00:51:04] to trim the workforce if needed. So, you know, it's a good, it's a good Trojan horse to, to do some of those kind of big sweeping changes for these large, large organizations by just having a return to office policy. Yeah. Yeah. And it's funny, Jamie diamonds, like I have mixed feelings about him because you look at him and sometimes you hear him speak and you're like, Oh, like I get this feeling like, God, this guy's really trustworthy. And, you know, like I can really respect what he's doing. And,

[00:51:33] but then there's other stuff that will come out or like literally like predatory practices, by JP Morgan, like literally like gobbing up for pennies on the dollars. Like, remember when we had the SVB, I think they, I can't remember, but they ended up buying most of the assets for, I think it was first Republic or was it? Yeah. One of those. First Republic. Yeah. First Republic went under and SVB had some huge changes. Yeah. Yeah, exactly.

[00:52:02] So he's not shy of, you know, making sure that his business, but also other banks benefit from, you know, whatever the government is doing or whatever is happening. But he also has this way of making you feel like, Oh, he's very trustworthy. But the more I see stuff like this, the more I'm like, I don't know. I'd be very careful.

[00:52:25] That was a key moment for someone like JP Morgan and J and Jamie diamond to really make the statement that, Hey, this G-SIB global, what is it? Globally systemically important banks, G-SIB. Yeah. Like, Hey, like we're the big dog of J of G-SIB and you, all these other small banks. Yeah, that's great. But like you need us, you need these G-SIB banks and you need JP Morgan. I think that was a kind of a,

[00:52:54] a good opportunity to make a statement. Yeah. Yeah, definitely. And I mean, look, I think the reality is I think right now we're kind of trapped with this, these G-SIB banks. Like at the end of the day, if one of them fails, which I'm sure will happen at some point in the future, it will happen. I just don't know when what's going to happen. Are they going to get bailed out or now you're seeing more and more hostility towards the elite? Do,

[00:53:23] are they just left to fail? And then with the consequences that are, that come from that. Yeah. To round this out, I, you know, my thoughts on depends on the industry, but I'm telling my team, we need to be, we're a startup. We're, we're iterating. These iterations happen. And these, these feedback loops are just tighter in person. So it's kind of like, what do you want to do? What do you want to work on? Cause for,

[00:53:51] for teams like us, teams that are obviously like doing like real engineering problems that want to do something really, really difficult. And to rule the, the defense contractor, they just put out some big recruitment video, basically being like, don't come work at Andrill. And it was basically like a parody almost of this guy. He's like, don't come work at Andrill. I have to be out in the field every day. I have to work so hard. I got to like come into the office every day.

[00:54:21] Don't work at Andrill. And it was this kind of thing where it's just like, it's, it's a statement. Like if you are this person, don't come work here. And if you're not, we want you, you know, if you're excited about working on hard challenges and excited about not working in your PJs and excited about being in the field and excited about being in an office every day, we want you. And it's kind of like this counter positioning that I think it's a really kind of interesting

[00:54:47] cultural moment right now with like work from home versus remote. I think to me at the end of the day, it's all about expectations. Like if you hire someone and the expectation is that they come to work, whether it's every day, whether it's three days a week, as long as you're clear on expectations, I think that's fine. And I think that's the issue that JP Morgan is facing because they clearly, you know, the pandemic happened and obviously expectations,

[00:55:16] I kind of shifted, but I think I'd be very curious to see the communication coming out of JP Morgan and leadership when they started shifting over to hybrid and probably now fully in person. I'd be very interested in seeing that. It's just because, yeah, if you have the right expectations, then there's usually, there's not going to be as much people that are pissed off by that because they knew what they were signing up for. Or if you told them, you know what,

[00:55:45] in a year from now, we are switching over. So this is the situation. Right now, we're doing two days a week. We'll gradually increase. But in a year from now, it's five days a week. If people know they've been well communicated, they may not like it. But if you're not on board, then too bad, so sad. But you, the expectations are clear. So I just, that is the one thing is, I don't know what kind of communication strategy they had with their employees. It's possible that they had a good one,

[00:56:14] but it's also possible that it was terrible, which I would not be surprised. That precedent set is so, is such a powerful, like, yeah, like you said, like managing expectations. It's really hard to, you know, people, the status quo, right? If the status quo is, changes, right? Then there's a huge shift in people's momentum towards that current thing. Right? So, yeah,

[00:56:44] managing expectations is huge, especially with workforces. I'm learning that right now. Yeah, and look, I think we're going to see, especially in Canada, I can't talk for the U.S. because their economy is a bit of a standalone, but as there's more competition in the job market, and there is potentially less jobs open, just realize that if you like the flexibility of hybrid or working from home, there might be less of those kind of jobs available,

[00:57:13] because employers who want their employees to come in, will know that now they have a lot more to choose from, which was in the case just maybe a couple of years ago. Thanks for listening to the pod, folks. We appreciate you. We are here every single week with more content, talking Canadian stocks, U.S. stocks, U.S. stocks, international stocks, ideas. I think we're going to bring a lot of new ideas. I'd like to try to keep bringing lots of new ideas to the- Complicated small caps, yeah.

[00:57:43] Complicated ideas, simple ideas, mega flop, wet stone, array processor ideas. It'll all- No stone will be unturned. The software engineers are probably like listening to this, like, what the hell are these guys talking about? Yeah, definitely. Thanks for listening, folks. We appreciate you. If you want to get this podcast with our beautiful faces for radio on your screen here, you can do that and support the show,

[00:58:11] as well as get our monthly portfolio updates. Every month we update what our personal portfolio is in a spreadsheet to the exact percentage. On joinTCI.com, it is just $9 per month. And, you know, it's really easy to follow along. And then you- It checks a lot of- It checks a lot of boxes, you know, it supports us. But also, you know, it helps you out too. There's a portfolio tracking spreadsheet in there too, which is still, in my opinion, the best.

[00:58:41] I spent a lot of time on that. So save yourself 10 hours of work and have all the formulas already built out for you there with the portfolio tracking spreadsheet there. Yeah, and a lot of people liking the updates I provide for my parents' retirement portfolio too. So I keep getting a lot of questions for those. Even people emailing to say if I share the full portfolio on there, which I do, and all the moves that I make for them. So it's a fun little portfolio to manage. And I do those updates every two months.

[00:59:11] But once I'm done with my job at the end of March, I'll start doing those updates every month. So for people interested, there's going to be more updates on that. And it's kind of a non-traditional retirement portfolio, but not as risky as you think either. So yeah. Makes sense. Thanks, folks. We'll see you in a few days. Take care. Bye-bye. The Canadian Investor Podcast should not be construed as investment or financial advice.

[00:59:38] The hosts and guests featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions. The Canadian Investor Podcast should not be construed as a financial advisor.