Should You Buy, Hold or Sell during Market Sell-offs?

[00:00:00] The Canadian Investor podcast.

[00:00:20] Welcome into the show.

[00:00:21] My name is Braden Dennis, as always joined by the remarkable Mr. Simon Belanger.

[00:00:29] Dude, I love when there's a good widespread market sell-off.

[00:00:35] Canada is all on a Monday long weekend holiday and the U.S.

[00:00:41] market just gets absolutely crushed.

[00:00:43] I checked my phone.

[00:00:44] I'm like, yeah, I'm supposed to be on vacation today, but it looks

[00:00:47] like a good day to buy some stocks.

[00:00:49] Yeah.

[00:00:50] I feel like unless you're someone interested in investing, uh, you

[00:00:54] took the day fully off if you're interested in investing, you

[00:00:57] definitely kept an eye on what was happening in the U.S.

[00:00:59] That's for sure.

[00:01:01] And I wanted to start there today on my excitement when I see

[00:01:08] widespread market sell-offs, when I go onto my dashboard and I see every

[00:01:14] index down three, 5%, sometimes even more internationally it, uh, buying

[00:01:22] beaten down stocks when the rest of the market is in a bull run feels

[00:01:27] generally quite difficult.

[00:01:28] You're going against the grain.

[00:01:30] It's the feeling of someone on the side of this trade is a chump and

[00:01:36] I really hope it's not me.

[00:01:38] That's the feeling, right?

[00:01:42] But when the whole market sells off, it's like, Oh baby, that feels a lot better.

[00:01:48] Yeah.

[00:01:48] When there was a widespread market, clearly the war names more

[00:01:51] impacted than others.

[00:01:52] I think if you were looking at like kind of miners, uh, energy, those

[00:01:58] were like still down, but not down as much.

[00:02:01] I mean, gold was holding up pretty well.

[00:02:03] I think just as a safety almost asset, I think that's the main

[00:02:07] reason behind it when there's a widespread sell-off gold is one

[00:02:11] of the areas investors will go to, uh, that in U S treasuries,

[00:02:15] which is what we kind of saw yesterday.

[00:02:17] And, uh, I just recorded with Dan, which will be out in a couple of

[00:02:21] weeks from now, cause as you know, uh, we're going to be taking,

[00:02:24] well, I'll be taking some vacation.

[00:02:26] So recording episodes in advance.

[00:02:28] So we had to mix in terms of, you know, we're not making it too

[00:02:32] kind of time specific, but one thing I'm breaking down for people,

[00:02:35] I make sure you tune in at the end of the month is that I broke

[00:02:38] down the Japanese carry trade, which is one of the causes that

[00:02:43] a lot of, uh, you know, people were identifying investors,

[00:02:46] wine into buying for the market sell off yesterday.

[00:02:49] I think there's others, but this one is one of the ones that

[00:02:52] kept being mentioned.

[00:02:54] Yeah.

[00:02:55] No, that's, I think the Japanese index 12 and a half percent at

[00:03:03] the open, yeah.

[00:03:04] And then up 10 today, I think 10 today, I saw it.

[00:03:08] TSMC was, was down TSMC like flash crashed a little bit.

[00:03:15] Um, a couple names kind of did.

[00:03:18] So anyways, the whole point of this intro is that feeling goes away

[00:03:24] when I see there's widespread, uh, anytime CNBC has a markets in

[00:03:30] turmoil segment, which by the way has always produced a forward positive

[00:03:36] return over the next 365 days, 100% of the time.

[00:03:42] Um, I always feel a little better in those situations because I'm a long

[00:03:48] term investor and I have a pretty good feeling, pretty good amount of

[00:03:52] confidence that I'm not the chump in that trade when it's going against

[00:03:57] the grain, you got to think a little bit harder.

[00:04:00] And so I bought some more ASML yesterday.

[00:04:02] It was kind of an opportunistic thing where it dropped under

[00:04:04] 800 bucks for like 20 minutes.

[00:04:07] And I was like, it just happened to be on my phone in the morning drinking

[00:04:09] my coffee and I hopped on my computer.

[00:04:12] Um, anytime it trades under a 30 PE, I'm like, I'm into it.

[00:04:16] And I was also this close to buying some Amazon because it's getting,

[00:04:20] getting whacked pretty good, but I just wanted to provide that quick

[00:04:23] update because of my joint TCI.com subscriber update for our portfolios.

[00:04:28] At the end of, uh, at the end of July was, Hey, I did nothing.

[00:04:33] Um, and so my update, my update was, Hey, I did something.

[00:04:37] Yeah.

[00:04:37] I didn't do much.

[00:04:39] I bought some gold and I was kind of happy.

[00:04:41] I was holding a call yesterday, but, uh, um, yeah, I didn't do too much for me.

[00:04:47] I mean, I'm still didn't do any opportunistic buy yesterday.

[00:04:51] My view here is that we're going to see a lot of volatility leading into the

[00:04:55] U S election in the next like two, three months.

[00:04:58] So I think don't be surprised if we see these like two, three days down.

[00:05:02] Uh, two, three percent like down days.

[00:05:05] And then the next day it's up to 3%.

[00:05:07] I feel like we're going to be seeing a lot of ups and downs.

[00:05:11] So, um, for people to get prepared, uh, I don't know whether there's going

[00:05:15] to be as good buying opportunities or not, but I do have some names where

[00:05:19] I, I have on my list that I'm keeping a close eye on.

[00:05:22] I just wanted to take a little bit of a step back and just

[00:05:26] to see what will happen.

[00:05:27] There's just been a lot of news coming in, which wasn't super positive,

[00:05:32] especially for the U S with the jobs number being weaker than expected.

[00:05:36] And now essentially the market's pricing into a wide, at least one, uh,

[00:05:40] rate cut with the fed in September and then potentially two as well.

[00:05:43] So, um, just taking a little bit of a step back, but I did not sell anything.

[00:05:48] I'm just like, I just didn't pull the trigger on anything.

[00:05:51] Well, that's a great transition.

[00:05:53] I don't know if you meant to set that up like that, but what

[00:05:56] you're talking about your cell rules.

[00:05:58] You have two lists here.

[00:06:01] Hard sell rules and soft sell rules.

[00:06:04] I think this is a good segment.

[00:06:06] Yeah, exactly.

[00:06:07] And I think honestly, uh, so the two rules, I mean, these are just

[00:06:10] a big buckets of rules for people that I find people tend to adhere to.

[00:06:16] Um, there's some positive and negatives to both.

[00:06:19] And I think it really depends on what kind of investor you're at,

[00:06:22] that it may, maybe better to have one over the other.

[00:06:26] So a hard sale rule is just when you have a rule in place

[00:06:29] that if something happens, you automatically sell your position.

[00:06:32] So for example, if a company you own has a negative earnings, you sell.

[00:06:36] If a company you own has a year of declining sales, you sell.

[00:06:41] If a company you own cuts the dividend, you sell.

[00:06:44] So these are just example of like hard rules.

[00:06:46] So, you know, if this happens, then I'm selling.

[00:06:49] The advantage of these kinds of rules is that it removes the

[00:06:51] emotion and subjectivity out of it.

[00:06:54] I know lots of people that have these rules and it's worked

[00:06:57] actually quite well for them.

[00:06:59] Um, I think it's especially good if you are someone that can get

[00:07:03] emotional with your investment or have a positive bias towards your own

[00:07:07] investment, even when there is evidence to the contrary.

[00:07:11] Uh, the problem with these rules is that it tends to be based on

[00:07:14] numbers only and does not consider the context.

[00:07:18] Actually, another example of that could be a rule where, um, let's

[00:07:22] say you have positions where for you, it cannot go over 10% of your portfolio.

[00:07:28] If it goes over that threshold, then you bring it down to 10%.

[00:07:31] Let's say, you know, maybe you give yourself one or 2% leeway.

[00:07:35] But, you know, one of the drawbacks here is like with that exact example

[00:07:40] is you could, you don't let your, you know, winners run as much.

[00:07:44] In that example, you're actually just trimming.

[00:07:46] But, uh, if you take some of the examples I talked about, say declining

[00:07:50] sales on a given year or even negative earnings, if you applied

[00:07:54] that rule to the letter, um, I don't know about you, Braden, but I can

[00:07:58] guarantee that there would be some really good companies that you would

[00:08:02] have sold in 2020 because of what happened and that blacks want to

[00:08:08] event that happened with the COVID-19 pandemic.

[00:08:11] So I think it's just, it's a little bit of a trade off here.

[00:08:14] Hard sale rules can have their place.

[00:08:16] Um, I know a lot of people will have those and works well for them.

[00:08:20] But for me, I'm more in the softs, uh, sale rule camp, which I'll go over.

[00:08:24] But any comments on the hard sell rules first?

[00:08:28] I think generally the last one talking about hard rules around performance

[00:08:34] is, is one I really try to avoid the same way.

[00:08:37] I don't think stop losses are good as a good tool for a longterm

[00:08:41] investor, particularly useful for active traders, but not necessarily

[00:08:46] longterm investors, the same reason why I like that there's broad market

[00:08:49] sell-offs is that I can scoop up more comp more shares in what I deem to

[00:08:55] be businesses that are going to compound my capital for a long time.

[00:08:59] If they have a broad market drawdown, like S and P was down 50% in the

[00:09:03] great financial crisis in 08, like that was a pretty good time to buy

[00:09:07] stocks, not sell stocks, right?

[00:09:09] Like, and then on the previous point, yeah, the whole problem with this

[00:09:15] is the world is nuanced.

[00:09:17] I think you can kind of put it down to almost every trick.

[00:09:22] Anytime you run into really hard sets of rules around investing is the world

[00:09:27] is nuanced and I think it does it.

[00:09:29] The money is made by you being able to think and, and think about the

[00:09:36] pros and cons and look at the nuance.

[00:09:38] That's where the alpha is.

[00:09:41] Yeah.

[00:09:41] Yeah.

[00:09:42] And probably the one that resonates the most with me from a hard sell

[00:09:46] rule perspective and just because it's more of a portfolio management thing

[00:09:50] is what I, you know, one I talked about is, you know, you have a certain

[00:09:55] amount of allocation and you want to hedge your risk and not go above a

[00:09:59] certain allocation for a given stock, Bitcoin, whatever it is.

[00:10:04] And you want to trim it back down that I can definitely understand

[00:10:08] because you're also mitigating risk.

[00:10:10] Yes, you can, you know, limit your returns, but again, I think

[00:10:15] it's a trade off, right?

[00:10:16] Like if you, it's something that, you know, when it gets above a certain

[00:10:20] percentage, it stresses you out, then put that rule in place and you

[00:10:24] automatically do it when it goes above that percentage threshold.

[00:10:27] That simple.

[00:10:28] It's one of the advantages that self-directed investors have is they

[00:10:36] don't have those arbitrary kind of risk rules, risk portfolio

[00:10:42] allocation, volatility management type of rules.

[00:10:46] Like if, if some monster company turns into a monster winner and all the

[00:10:50] sudden becomes more than 10% of your portfolio, letting it run, AKA

[00:10:56] doing nothing, which is a decision in itself might be the best decision

[00:11:00] you ever make in your entire investing career.

[00:11:02] And so I don't want to miss out on those.

[00:11:06] No, no, that's a fair point.

[00:11:07] And I mean, again, I think that's why these sell like these rules are very

[00:11:11] personal to, you know, just know yourself.

[00:11:13] And that's the last segment I'll talk about is, you know, when you have

[00:11:17] market drawdowns or days that are deep in the red or weeks, whatever it is,

[00:11:22] I think it's important to just realize how you react as an investor

[00:11:26] and just be honest with yourself.

[00:11:27] Cause we, you know, you know me, I can handle volatility.

[00:11:31] That's why like I have such a big allocation in Bitcoin, but

[00:11:34] it's not for everyone.

[00:11:35] Uh, not everyone can handle that volatility and it same applies to

[00:11:39] stock.

[00:11:40] Now soft sell rules, they give you a bit more flexibility.

[00:11:43] I actually a lot more flexibility here where you have a rule in place, but

[00:11:47] you also consider the context around it before deciding to sell or not.

[00:11:51] So take my example of, you know, 2020, you have a company that, uh,

[00:11:55] you know, is really impacted by all the lockdowns or could have been

[00:11:59] the supply chain issues has a year of negative earnings or declining

[00:12:03] sales and then rebounds the next year to have an amazing 21 and onwards.

[00:12:09] Right?

[00:12:09] So you have to take that into account.

[00:12:11] This approach works best, I think for those who can be unemotional with

[00:12:15] their investment and can look at their holdings objectively, the problem

[00:12:20] with soft sell rules though is that you can end up keeping companies

[00:12:23] that are trending downwards that you would have sold if you had hard

[00:12:27] sale rules and you ended up convincing yourself that bad results

[00:12:31] are only temporary when in fact it's actually a structural problem

[00:12:34] with the actual business and it's unlikely to get better in the long

[00:12:38] term.

[00:12:38] And personally, I think people's, if you've been listening to the

[00:12:42] podcast for a little bit, you know where I stand and I think

[00:12:45] Braden, you're like that as well is when I decide to sell, it's

[00:12:49] usually because there's more than one thing that's not going right

[00:12:52] direction with the business.

[00:12:53] Um, I also don't just use one metric or use a bunch of different

[00:12:57] metrics, uh, factor in earnings calls, the management discussion and

[00:13:02] analysis, supplemental financial information, if it applies for the

[00:13:05] company, even a macroeconomic trends and how that could impact, uh,

[00:13:11] positively or negatively the company.

[00:13:12] So that's how I will factor in my decision to kind of buy while I,

[00:13:17] in this situation would be sell a company.

[00:13:20] Um, so that's the approach that works well for me.

[00:13:22] But again, I've seen people with hard sale rules that I've done

[00:13:25] actually very well, uh, just because for them, they know that

[00:13:30] that's the best approach and that they are risking bigger mistakes

[00:13:34] by, uh, you know, using soft sell rules.

[00:13:37] Like I think both of us do.

[00:13:39] Yeah.

[00:13:39] And I think a combination is the sweet spot, right?

[00:13:42] It's like, okay, I have these sets of things.

[00:13:46] If X happens, that's just unacceptable for it to be in my portfolio.

[00:13:53] Um, if Y happens, I might think about it.

[00:13:57] Uh, and that, that might fit into that second bucket.

[00:14:00] I think that's the perfect fit.

[00:14:02] And I have a combination of, of hard and soft together.

[00:14:07] I think that that's the really valuable approach because you have

[00:14:11] this kind of a systematic approach to look, I draw the line here.

[00:14:18] That's that's okay.

[00:14:19] Um, and then, you know, on these types of things, I'm going to need

[00:14:23] to have a more nuanced approach.

[00:14:24] I think that's a good way to go.

[00:14:28] Let's talk about consumer companies.

[00:14:32] And when I say consumer companies, I just mean that their main business

[00:14:38] is serving the consumer segment, not B2B.

[00:14:43] And specifically, I want to talk about direct to consumer, consumer brands.

[00:14:50] So think of a lot of these companies are exclusively e-commerce, online

[00:14:56] shopping, but a lot of them will also have some in-store experience as well.

[00:15:00] But they're thought of as direct to consumer brands.

[00:15:04] So these are the types of companies I'm going to talk about today.

[00:15:07] And my segment is a two, a two for one and two for the price of one

[00:15:11] here, because I'm going to talk about two types of these companies.

[00:15:15] One business model that I'm very bearish on and one

[00:15:20] that I'm very optimistic on.

[00:15:23] So let's start with the bad news.

[00:15:26] Always deliver the bad news first.

[00:15:28] Direct to consumer brands, the growth can be fantastic.

[00:15:36] You know, the rise from zero to well-known brand can be meteoric.

[00:15:42] You can go from never hearing about Peloton ever in your life to all

[00:15:48] of a sudden everyone's buying one during the pandemic and then getting it

[00:15:53] and doing their posting pictures on Instagram of their home workouts.

[00:15:57] You know, doing conference calls while on their Peloton, right?

[00:16:00] Like those brands can go from zero to a hundred in culture very, very quickly.

[00:16:07] Yeah.

[00:16:08] Yeah.

[00:16:08] Stop the story there for Peloton.

[00:16:10] Don't see what happens after that.

[00:16:12] Don't continue.

[00:16:14] And that's where I'm going with this is that these consumer

[00:16:18] brands, most of them look like Peloton and sometimes the gross

[00:16:24] margins can be just absolutely exceptional too, at least for a while.

[00:16:29] A lot of these big brand names demand a premium price.

[00:16:33] The growth is fantastic.

[00:16:35] You can go from never hearing about it to your favorite comedy podcast

[00:16:40] host is telling you they love this new direct to consumer brand,

[00:16:43] which helps you last longer in bed or some new beautiful mattress

[00:16:48] or some new workout routine or some amazing new supplement

[00:16:52] that you got to try.

[00:16:54] And they usually demand that premium price out of the gate.

[00:16:58] And you see gross margins for some of these hard goods at 80 plus percent.

[00:17:04] And then you're thinking, wow, this is a freaking awesome business.

[00:17:08] I see this all the time.

[00:17:10] However, here's, here's the bot.

[00:17:15] There's a catch.

[00:17:16] Yeah.

[00:17:16] There's a catch.

[00:17:18] The SG&A costs will be like twice gross profit on some of these companies

[00:17:26] in some of the most extreme names.

[00:17:28] So you'll have amazing top line growth trickles through to

[00:17:33] amazing gross profits.

[00:17:34] The gross margins are amazing.

[00:17:36] And then you see the operating margin negative and losing millions

[00:17:40] and millions of dollars every quarter, in the tens to hundreds

[00:17:44] of millions of dollars a quarter.

[00:17:46] And no real signs of turning a corner on being profitable.

[00:17:52] Now I'm going to get into the accounting on this really quickly,

[00:17:55] but the problem stems in my mind from competition coming up really fast

[00:18:00] with these types of direct to consumer concepts.

[00:18:02] They get copied quick and then you need to spend, spend, spend, spend,

[00:18:06] spend on marketing to build a brand that leads and resonates the category

[00:18:12] to be top of consumer mindshare and be the de facto company that folks think of.

[00:18:18] And the problem here is that it is a SG&A, a.k.a.

[00:18:21] selling general and administrative cost expenses treadmill.

[00:18:26] The marketing costs sometimes scale faster than the revenues.

[00:18:31] And that's exactly the math I'm going to pull up here.

[00:18:33] So if you look at an income statement, like a standardized one,

[00:18:37] you'll see on Finch out or something, you'll see SG&A right under

[00:18:41] gross profit, which means selling expenses and general expenses.

[00:18:46] That includes sales expensive paying for the salespeople, travel expenses,

[00:18:52] you know, rent, utilities, office supplies, equipment.

[00:18:55] Now we'll go into general expenses, but the heavy hitters for these companies

[00:19:00] are marketing and advertising.

[00:19:02] Those are two massive hitters in this that are tucked into SG&A

[00:19:07] on like a standardized income statement.

[00:19:11] So this is not a comment on any of these companies, Simone, but rather

[00:19:17] pointing out that it's difficult for this model to make work.

[00:19:20] And I'm going to go through some of these names.

[00:19:22] Him and Hers Health, which is probably the strongest performer of the five

[00:19:26] I'm going to talk about today.

[00:19:29] They sell direct to consumer sexual health and wellness type things.

[00:19:35] They advertise all over the place and they've had a really good rise

[00:19:39] to where they are today.

[00:19:42] And the top line growth has grown at 97% a year since 2018, which is spectacular.

[00:19:51] And SG&A costs have grown 52%.

[00:19:55] For the concept of here, I'm just going to call them growth costs.

[00:19:59] Growth costs have gone up 52% a year.

[00:20:02] OK, so that's not bad.

[00:20:03] It's scaling twice as fast.

[00:20:05] All right, it gets worse.

[00:20:06] Chewy, Chewy, the brand that sells pet equipment,

[00:20:11] pet stuff. Ryan Cohen, Ryan Cohen.

[00:20:14] Total revenues of sales have grown at a companion growth rate of a nice clip of 41%.

[00:20:21] Growth costs have grown exactly also 41%.

[00:20:24] Again, I'm just calling SG&A here growth costs because that's

[00:20:28] this is growth cost to grow these businesses.

[00:20:31] Peloton.

[00:20:32] Revenues have grown during that time, 45% year over year.

[00:20:36] And growth costs have grown 40%.

[00:20:41] Warby Parker, the eyeglasses brand.

[00:20:44] Top line sales grew at 16% and marketing growth costs grew faster at 17%.

[00:20:51] Allbirds, the shoe company.

[00:20:54] Total revenues grew 5% and SG&A costs almost compounded at 18%

[00:20:59] during that time.

[00:21:00] These have not been good stocks to own, Mr. Petage.

[00:21:05] Allbirds down 98% all time.

[00:21:10] Chewy's down 55%.

[00:21:13] Peloton's down 84%.

[00:21:15] Hymns, the only positive performer is actually up 58%.

[00:21:19] I was the first one I went through the strongest performer and revenues

[00:21:23] growing much faster than marketing costs.

[00:21:24] That's what you want to see.

[00:21:25] Warby Parker's down 75%.

[00:21:27] Not a good basket to own, Simone.

[00:21:29] And you can go through the list.

[00:21:31] Many of them have gone extinct.

[00:21:33] Many of them gotten taken out.

[00:21:35] Many of them look like stock charts that you do not want to own.

[00:21:38] Many of them look like stock charts where you lost a lot of money.

[00:21:42] And this is mostly why.

[00:21:44] Any comments?

[00:21:46] No, I mean, I think it's for me, it just resonated in terms of the

[00:21:50] importance of looking at the operating margin.

[00:21:53] Because you capture a lot of this while you capture all of this cost.

[00:21:56] You don't break it down as GNA, but it's all your cause that are

[00:21:59] included in that or EBIT.

[00:22:01] So if you want to look at those two, it gives you a much better idea.

[00:22:04] As much as gross margins are great, it's just, you know, it's only

[00:22:10] a small portion of your expenses and sure.

[00:22:13] You know, you can textbooks, you can sometimes see like, oh,

[00:22:18] I'm going to go to the grocery store and buy a new one.

[00:22:21] You can sometimes see like, oh, well, your operating costs will be,

[00:22:26] sorry, your SG&A might be more stable.

[00:22:29] You know, your rent won't increase as fast as long as you have

[00:22:32] higher gross margins.

[00:22:33] That's what's important.

[00:22:34] But for me, I tend to look at the operating margins just because

[00:22:38] it captures all of that.

[00:22:39] And when I start seeing a whole lot of movement there, especially

[00:22:43] downwards, then I'll just have a look and understand a bit more what's

[00:22:47] happening with the business.

[00:22:49] Now on the contrary, for the good news, this is a classic example of

[00:22:54] picks, selling picks and shovels, you know, in the gold race.

[00:23:01] You know, there's an opportunity in the marketplace and those

[00:23:06] who are selling the kind of tools and underlying infrastructure

[00:23:10] typically are the ones that win the most.

[00:23:13] And I feel the same way when it comes to direct consumer brands,

[00:23:17] because these direct consumer brands lack a lot of competitive advantages.

[00:23:22] And that's why you're seeing them need to spend, spend, spend, spend, spend.

[00:23:26] They're on a SG&A treadmill and it's not the type of company that I want to own.

[00:23:33] It's much better to play the ecosystem players here.

[00:23:37] And some of them are fantastic.

[00:23:39] The tools that power them and the marketplaces where they find

[00:23:42] distribution and advertising.

[00:23:45] The reason is they have many of the competitive advantages that you want.

[00:23:49] If I look at like the seven powers in that book, they have four of them for

[00:23:53] sure. Scaled economies.

[00:23:55] Yes, there is operating leverage and costs don't need to necessarily scale

[00:23:59] network economies.

[00:24:00] Yes, definitely.

[00:24:01] You want to go where shoppers are if you're going to be a customer of

[00:24:04] one of these places, switching costs.

[00:24:07] Yes, switching platforms can be a massive pain and for it is a corner

[00:24:11] resource, but it's also a way to get the best out of the market.

[00:24:15] Of course, because there can only be, there may only be one, maybe two

[00:24:21] places that people go in terms of platforms for finding niche crafts

[00:24:27] online, but there could be thousands, tens of thousands of merchants.

[00:24:31] Right?

[00:24:31] So there's this huge corner resource in terms of supply and demand on

[00:24:35] these marketplaces.

[00:24:37] If we look at Shopify, Etsy, even Metta for where all the, a lot of

[00:24:42] spend gets captured.

[00:24:44] Google again, from that same thing, Mercado, Libre, Amazon, Wayfair, eBay.

[00:24:50] These have been of course to varying degrees of success, a much better

[00:24:56] basket to own.

[00:24:58] And this is not a comment on any of these stocks or any of those direct

[00:25:01] consumer stocks, but more so around a framework around investing in certain

[00:25:05] growth categories.

[00:25:07] These are not all created equal.

[00:25:09] One part of the ecosystem thrives and has amazing unit economics, and one

[00:25:15] has to spend on a treadmill of growth in perpetuity.

[00:25:20] It never seems to really take a turn.

[00:25:22] The promises that they gave their VCs doesn't really ever come true in

[00:25:27] the public markets from my personal assessment over the past eight or so

[00:25:33] years that these have been so popular in public markets.

[00:25:35] So that's my thoughts on direct consumer companies.

[00:25:41] I think it's a good overview.

[00:25:43] I mean, there are some hybrid ones, right?

[00:25:46] That are kind of had tried to shift a bit more to direct to consumer.

[00:25:51] I'm thinking like Lululemon and even Canada Goose, which have had decent

[00:25:56] success there.

[00:25:57] I mean, they're both struggling for, I think more reasons associated with the

[00:26:02] market they're trying to capture luxury and let's say kind of middle luxury.

[00:26:07] But those were established brands.

[00:26:10] I think they've shifted a bit more to the direct to consumer.

[00:26:13] Correct.

[00:26:14] That's it.

[00:26:14] You know, Nike going investing heavily into their D to C experience is a

[00:26:21] lot different than I have some upstart in 2018, some shoe company,

[00:26:26] and I'm going to sponsor every tick tocker under the sun over the next

[00:26:31] six years.

[00:26:32] You know, that's a lot different, right?

[00:26:35] Like one's in a very established brand leveraging new distribution channels.

[00:26:40] One is spending, spending, spending to find distribution among new channels.

[00:26:49] Yeah, no, exactly.

[00:26:50] But no, I think that was a great segment and we'll finish it off here

[00:26:53] with having a plan when investing.

[00:26:56] So kind of goes with what we were talking about at the beginning with

[00:26:59] market sell off, market volatility.

[00:27:03] And then obviously some of the sale rules, I guess, you know, ties in a

[00:27:07] little bit into that, but I thought it was good to talk about that because

[00:27:11] if you own, you know, big tech or an invest or an index fund, you know,

[00:27:16] that's heavily in big tech.

[00:27:17] You've definitely felt some pain in the last couple of weeks.

[00:27:20] Not just yesterday.

[00:27:22] We're recording this on the six.

[00:27:24] So even if you take out big tech equities, I've seen a pullback in

[00:27:28] the last few weeks.

[00:27:29] And if you're listening to this podcast, chances are that you have a decent

[00:27:33] allocation to equities and probably decent allocation to big tech as well.

[00:27:37] And the NASDAQ, like I mentioned, it had a correct correction

[00:27:41] territory and big tech names have all gone down.

[00:27:44] I would say, I think all of them I've gone down at least 10%.

[00:27:48] Right.

[00:27:48] Since the peak, which, you know, if you zoom out, obviously, you

[00:27:53] know, they've had a fantastic year.

[00:27:54] So keep that in mind.

[00:27:56] But I'm just talking here since the peak.

[00:27:58] And I think it's important because first of all, you know, I don't think

[00:28:02] any direction, I don't think we're having any bake sale for the shareholders

[00:28:05] of these companies as of now.

[00:28:07] No, no, I think they're doing okay.

[00:28:09] And I mean, I think it's just a reminder that 10%

[00:28:12] corrections on the S&P 500 happen on average.

[00:28:15] I think it's about every year and a half or so.

[00:28:18] So, I mean, it's quite normal.

[00:28:21] So of course, you know, could it get worse?

[00:28:23] Sure.

[00:28:23] It could.

[00:28:24] Could it just be the end of it?

[00:28:25] Of course, that could be the end of it as well.

[00:28:28] But I think it's just an important reminder of just being self-aware

[00:28:32] of how you're reacting when you get these big market swings, obviously

[00:28:36] downwards, because, you know, it's fine to have a fantastic plan in place.

[00:28:43] But if your emotions get the better of you and you panic,

[00:28:45] that goes out the windows.

[00:28:46] And I think it was what Mike Tyson that says, everyone has a plan

[00:28:50] until they get punched in the face.

[00:28:52] And from an investment.

[00:28:54] Exactly.

[00:28:55] And from an investor perspective, I mean, being punched in the face is,

[00:28:58] you know, seeing your investments go down three, four, five, six percent

[00:29:02] in just the span of a few days or even a day.

[00:29:06] That's a reality check because, you know, you just have to be

[00:29:10] honest with yourself.

[00:29:11] So if you find yourself panicking or selling position

[00:29:15] because you're afraid of losing money, then you're probably

[00:29:18] you probably need to reevaluate your strategy.

[00:29:21] And I think it's important because especially if you've started

[00:29:24] investing in the last year, year and a half or so, this might be

[00:29:28] the first time where you see this kind of market reaction.

[00:29:32] And, you know, it's fine to tell yourself, oh, I'll be steadfast

[00:29:36] when it happens, but until you live it, you don't really

[00:29:39] know how you're going to react.

[00:29:42] Yeah, I think that Mike Tyson quote says it perfectly,

[00:29:47] especially if you've if your expectations, like what does they say?

[00:29:52] Happiness is just expectations minus results.

[00:29:55] And as investors, you have.

[00:29:59] You can build up unrealistic expectations if you're born

[00:30:03] born in a bull market, right?

[00:30:05] Like there's a direct correlation between an entire generation of people

[00:30:11] who are born in different decades view on the stock market, depending on

[00:30:16] as they were growing up and starting to make money, how it performed.

[00:30:19] Right. There's an entire psychology that develops around that time.

[00:30:24] And so if expectations of happiness is just expectations minus reality.

[00:30:30] People need to be fully educated that the expectations should be volatility.

[00:30:35] The only thing you should expect is volatility so that when you

[00:30:39] when it when it comes, you know that you've already

[00:30:42] expected that it's going to happen.

[00:30:44] Yeah. And you only need to listen.

[00:30:46] And there is quite a few portfolio managers that started

[00:30:50] managing money in the kind of early 2000s.

[00:30:54] So right after the tech correction of the 1990s or 2001, I think it was.

[00:31:00] And before the great financial crisis.

[00:31:03] And if you listen to them, I mean, almost all of them,

[00:31:07] you'll hear what they learned.

[00:31:09] And oftentimes was they had a bit of overconfidence going into

[00:31:14] the great financial crisis.

[00:31:16] And they learned a whole lot in terms of, you know, how to react,

[00:31:20] what to do, lessons learned from when you get a massive market

[00:31:25] correction that can span over what was a couple of years to three years

[00:31:29] until the markets fully rebounded.

[00:31:31] So I think that's always good to just learn from those portfolio managers,

[00:31:36] especially those that may manage like high net worth individuals that,

[00:31:39] you know, actively manage your portfolios, but don't necessarily

[00:31:42] have funds or anything like that.

[00:31:44] Just, I know this is hard, maybe hard for people to rationalize,

[00:31:48] but if you are a self-directed investor and it's, you know,

[00:31:53] it's weird to say it's just your money.

[00:31:56] You know, well, of course it sucks to lose your own money.

[00:32:00] But if you have conviction for what you're doing over a long term,

[00:32:04] just be actually quite grateful that it's not you're managing high

[00:32:08] net worth individuals and then have to report back to them on someone

[00:32:12] who might be completely uneducated and just see the stock market's going down

[00:32:16] and that you're at fault and it's all your fault.

[00:32:20] Just know that those are potentially the people you're trading against

[00:32:23] with those high emotions and conflicting incentives.

[00:32:27] This is good for you.

[00:32:29] Like this is, yeah, this is why we're doing it.

[00:32:31] This is why you have an advantage.

[00:32:34] Yeah, and I like honestly, like I know we,

[00:32:36] I think there was some very good financial advisors, planners out there.

[00:32:42] There are some really bad ones too.

[00:32:44] And obviously we've been critical at times.

[00:32:46] But if you're someone that's really emotional

[00:32:49] and, you know, having a financial planner, a good one will actually

[00:32:53] rein you in, keep you on track, even despite their fees,

[00:32:57] that could actually be a whole lot of value for you.

[00:32:59] Actually could create some better outcomes if you're one of those people.

[00:33:03] So I think it just goes back to knowing yourself when these things happen

[00:33:07] and being 100% invested in equities like let's be honest,

[00:33:10] it's not for everyone.

[00:33:12] It's going to be pretty volatile.

[00:33:14] If you have a long time horizon like Brayden mentioned earlier,

[00:33:17] corrections of 10, 20, 30 percent plus don't phase you,

[00:33:21] then you'll likely be fine and you just stay the course.

[00:33:24] But if you have a shorter time horizon, maybe you're retiring in a few years

[00:33:29] or you just can't stomach the volatility without panicking

[00:33:33] and panicking selling, then it might be worth looking at

[00:33:36] diversifying your portfolio with other assets or maybe even,

[00:33:40] you know, having someone where you can bounce ideas off.

[00:33:44] It could be, like I said, a financial planner, a financial advisor.

[00:33:47] That's a good one.

[00:33:48] And it's important to remember that investing is also not an all or nothing proposition.

[00:33:53] So, you know, there's equities, but there's also, you know,

[00:33:57] I have a bit of cash on the sidelines through treasury bills, getting me five percent,

[00:34:02] whether it's precious metals, Bitcoin, bonds, etc.

[00:34:05] There's other types of assets.

[00:34:06] And I'm not saying you should do this or not,

[00:34:09] but what I want to say is just basically take a step back

[00:34:13] when this happens and just see how you react to it,

[00:34:17] because that will probably, you know, if you're being honest with yourself

[00:34:21] and you take the right step to either correct that or, you know,

[00:34:25] if you're just unemotional, you stay the course, no problem.

[00:34:28] Then there you go.

[00:34:29] You know how you'll react in future corrections.

[00:34:32] But if you can't stick with your plan that you had drawn up,

[00:34:36] then it's probably time to look at making some revisions to that plan.

[00:34:41] And honestly, there's nothing wrong with that.

[00:34:43] I think it's just being self aware and just being knowing yourself.

[00:34:49] And if you need to make some slight changes to your plan, because if not,

[00:34:53] you probably will.

[00:34:54] If not, you calculate that you'll make a huge mistake at some point in the future.

[00:34:59] Then there's nothing wrong with that. Yeah.

[00:35:01] Yeah. And the switching the plan or rethinking the plan.

[00:35:06] Doesn't have to even be so extreme.

[00:35:08] I know some of us sometimes some fantastic decisions for some people has been,

[00:35:13] all right, individual stock picking is not for me,

[00:35:17] but being fully invested in equities is.

[00:35:20] And so I've gone with a low cost diversified index fund and happy as a clam.

[00:35:26] I know multiple people like that, like my brother, for instance, he's like that.

[00:35:29] And I'm like, dude, don't change a thing.

[00:35:33] Keep going.

[00:35:35] Keep going. Like what you're doing is perfect.

[00:35:38] And so, yeah, the plan doesn't have to be investing is not for me.

[00:35:44] No, exactly. Yeah.

[00:35:46] And in fact, it should be it is for me.

[00:35:49] Hopefully, if you're listening to this podcast, you already know that.

[00:35:51] But yeah. Yeah.

[00:35:53] Because I mean, if you're in cash only, I mean,

[00:35:56] you know, it may not stress you out and may keep its value on a nominal

[00:36:01] basis, but on a real basis adjusted for inflation, you're actually losing money

[00:36:05] over time. So even though right now you can get,

[00:36:09] you know, especially with U.S. dollars, you can get over five percent.

[00:36:13] And actually, did you know that I did some little calculation

[00:36:17] with the weakening Canadian dollar?

[00:36:19] If you've held U.S.

[00:36:21] Treasury bills, so very short term U.S.

[00:36:23] Treasury bill one to three months like I do,

[00:36:26] you've made so far this year about seven, seven and a half percent on your money.

[00:36:32] Just holding that with the fact.

[00:36:33] Yeah. And obviously in Canadian dollars.

[00:36:36] Yeah, I calculate in Canadian dollars.

[00:36:37] So, you know, food for thought for people, obviously it's not an all or nothing.

[00:36:43] I think that's really important for people is, you know, you don't have to do an all or nothing.

[00:36:47] But just looking at the different options and like you said,

[00:36:51] whether it's just being fully invested in equities, but just using index fund,

[00:36:55] there's so many different things you can do and just find the approach that fits best for you

[00:37:00] and that you can follow and stick with your plan if, you know, we see a pretty big market correction.

[00:37:08] Yeah, well played. And I think that there's like, I'll use an example of

[00:37:15] what I've been thinking through just this past week even.

[00:37:19] So in my mind, I'm like, okay, I want to own all three big cloud providers, the big three,

[00:37:28] the GCP, the Microsoft Azure, the Amazon Web Services. I'm like, I want to own all three and

[00:37:37] I don't want more positions. So should I just buy Amazon? And then I complete the trifecta.

[00:37:45] And then I'm like looking at the queues and I'm like, I could just replace this with the queues

[00:37:51] and just be fine. And so these are the types of things that I think are totally fine to

[00:37:57] regularly question yourself on. I think everyone does and to, you know, kind of second guess and

[00:38:05] maybe that kind of, you know, lack of confidence or whatever it might be moving forward.

[00:38:13] I think everyone deals with it. But at the same time, if you stay invested, like rounding about

[00:38:19] this all through all the volatility, if you stay invested for a long time, we're going to look

[00:38:25] back at all this and say that was just a blip or, you know, one year, two years, three years

[00:38:31] of performance didn't really matter. But the 20 to 30 to 40 years really did. Yeah, that's it.

[00:38:41] That's essentially, you know, when you zoom out that it makes a whole lot more sense. But

[00:38:46] in the moment, it's easier said than done sometimes. I think that was the reason I did

[00:38:51] that is because, you know, yes, it's easy to look back at 2008, 2009, 2010 and be like,

[00:38:58] oh, like, look, if you stayed invested, look how well you're doing now. But I can guarantee

[00:39:03] you in the moment and I was old enough, like obviously you too, but I was probably a

[00:39:08] bit more in the start of my investing years just based on my age. Like, you know, it was scary for

[00:39:14] a lot of people. You know, the US was going, you know, the whole debacle with the subprime

[00:39:19] mortgages and then the great financial crisis. I think it's just a good reminder that yes,

[00:39:26] when you zoom out, it's much easier to say like, oh, like look at this, you know, person

[00:39:31] that's held in Amazon for like 20, 25 years. But in the moment, a lot of people couldn't

[00:39:36] have stomach the volatility when you had those massive drawdowns. So just keep that in mind.

[00:39:41] Yeah, that's so true. It is it is easier said than done. I don't know if I'm trying to pull

[00:39:47] it up. I'm googling rapidly right now. But it's really hard thing to query on. If I find it,

[00:39:54] I'll do a segment on the podcast. But to summarize it, it is basically the top performing

[00:40:02] Schwab personal accounts like ever. So, you know, accounts that have been around for the last

[00:40:08] like 30 years or whatever the best personal DIY accounts, a lot of them were people who forgot

[00:40:14] the password. Yeah, I heard about that. Yeah. Yeah, that's funny, because they did nothing.

[00:40:21] Yeah, they did nothing. And you know,

[00:40:27] the details are kind of irrelevant here. Like that in itself is a funny concept, right? Like,

[00:40:34] the people who forgot their password had the best results. And sure, there's some luck involved

[00:40:40] there like, oh, I picked Amazon and when it was down 80% in 2002. And I had 100% of my

[00:40:46] portfolio in there and I forgot the password. Yeah, I'm going to have probably the best

[00:40:50] performing account. But there's a lot of insight in that anecdote, right? Like people who forgot

[00:40:58] their accounts had the best performance. Thanks for listening to the podcast folks. We

[00:41:03] really appreciate you. And we are here Mondays and Thursdays all through the summer. Hope you

[00:41:10] guys are having a great summer. I know August has shaped up already to be really nice and

[00:41:16] hope everyone enjoyed the long weekend as well. Simone, any big plans for the rest of summer?

[00:41:23] No, just renting a cottage for a couple weeks. So that's why we'll be recording some,

[00:41:29] trying to record some episodes in advance. I'm hoping I won't have to record during those two

[00:41:35] weeks. May have to do an episode, but that's a big plan for us bringing the family there

[00:41:41] and a few friends over time. So I get our little lady to go in the lake. She loves

[00:41:45] the water with their floaties on. Yeah. I don't know if you can see, but I'm in,

[00:41:50] I'm at my cottage right now and there is a crib behind me and a baby life jacket in the back.

[00:41:57] So my nieces have all the goods here and they love swimming in the lake too. It's very cute.

[00:42:05] Yeah, I got to get them tired so they sleep well. That's the trick.

[00:42:09] I want to sleep a little better up here.

[00:42:12] Yeah, so the parents can relax for an hour, an hour and a half at night. That's the trick.

[00:42:17] It's like when, you know, for those who don't have kids, your part of the day where you can

[00:42:23] relax is basically the hour or so between the kid going to bed and you going to bed.

[00:42:29] Yeah. Dude, up here with my family because I don't have kids yet personally, but the

[00:42:36] you know, the uncle, I'm cool. The cool uncle and the funkel. The two times a day where things

[00:42:43] get wild up here are midday nap dock party because we got like, you know, we got a window

[00:42:51] there, dock party, get down there. Oh yeah. The kids are asleep and then yeah, like cards

[00:42:56] right after bedtime. You know, these are the two opportunities to have a good time.

[00:43:02] I can definitely relate to that.

[00:43:05] Thanks for listening folks. If you have not checked out FinChat for free or with a paid

[00:43:11] subscription, finchat.io, you can take 15% off your plan with code TCI. That is code TCI for

[00:43:21] finchat.io. We'll see in a few days folks. Take care. Bye bye.

[00:43:25] The Canadian investor podcast should not be construed as investment or financial advice.

[00:43:31] The host and guest featured may own securities or assets discussed on this podcast.

[00:43:37] Always do your own due diligence or consult with a financial professional before making