Top 10 Performing TSX Stocks This Year

[00:00:00] 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.

[00:00:21] As always joined by the very handsome Simon Belanger. Just before we started recording, we talked about how much junk there is on the Toronto venture exchange. It's just a general PSA. Do extra due diligence on the TSX venture because there is a ton of garbage out there.

[00:00:45] So be careful. Yep. I would say, I don't know. I don't know the percentage, but it feels like most of the companies I end up looking the venture, it's always, it just, it looks good on the surface and then you start digging like just a little bit.

[00:01:00] You're not even a lot and there's some weird stuff happening. There is. I mean, I think we were doing the math on it and the constellation spin-offs are about 15% of the market cap of the TSX venture now.

[00:01:15] And then everything else I look at, I'm always thinking there is when there's smoke, there's a lot of junk here. On that same note, Simone, I'm going off notes here. Did you see that there's the new Texas stock exchange being proposed? Yeah, yeah, I saw that.

[00:01:33] TXSE, which is way too close to the TSXE in my mind, but hey, they clearly don't care about the Toronto Stock Exchange acronym when they're proposing the Texan stock exchange. Yeah, I mean, I think it's I haven't read too much about it, but my understanding is

[00:01:52] they would probably have lower fees than the New York Stock Exchange and Nasdaq. And they would also be a bit more business friendly because my understanding is that New York Stock Exchange and Nasdaq impose some additional requirements that are

[00:02:08] more philosophical on their end than actually actual requirements by law or by security exchanges. Yeah, you have this duopoly in the US for the most part if you want investors to actively participate in your listing.

[00:02:28] And when you have just two players in this like extreme regulatory capture moat, there isn't a lot of innovation that adds value. People start doing other projects that not necessarily might add value. And you have a lot of pricing power and they're phenomenal businesses, let's not kid ourselves.

[00:02:51] And I think over time there becomes more and more appetite for a third player. Now, this is extremely hard to pull off. Yes, they've made a website. Yes, they say they're going to challenge the incumbents.

[00:03:07] Yes, they have even backing from BlackRock and Citadel, which have huge deep pockets and well connected in the capital market space. This is an uphill battle. There have been many entities that have tried to take on the two big players.

[00:03:24] And there's a reason that regulatory moat is really difficult to disrupt. Before we get into today's content, Simone, Blossom, the social app for investing in Canada. They're hosting an event Tuesday, the 25th at 8 p.m. So people have time. People have time. People have time.

[00:03:46] You have two weeks roughly. It is Tuesday, the 25th at 8 p.m. in Toronto at the Stacked Market. You can buy tickets. They're very affordable by typing in on Google Blossom Event Toronto on Event Bright. That's where you can buy a ticket. I will be there.

[00:04:04] If you want to come say hello and meet me, I will be there on the 25th of June. All right. Into the contents, Simone. It is halfway through the year now. And I wanted to look at what's been working on the TSX in particular.

[00:04:24] What has been some surprising names and just get an idea of like what the top 10 performing stocks on the TSX are. And I was a bit surprised by what I saw. You can see the list here as well.

[00:04:40] Anything that interesting pops out before I get into the list? Just gold. Gold miners. I mean, I'm not surprised just seeing these names. I'm not surprised at all. I mean, half of them are seem tied to gold or silver in some way or materials, metals and mining.

[00:05:00] And I mean, gold has been a bit on a tear since October and November of last year. And obviously you have gold miners and I'll say gold miners here, but there's different things. But gold miners are typically a leverage play on gold, right?

[00:05:14] Because they have these kind of these higher expenses. They're typically relatively fixed. So what ends up happening is if the price of gold kind of goes up, their profits really take off because the expenses stay relatively stable.

[00:05:30] So that's why most people will say that leverage play on gold. Then obviously a lot of them have debt unless you're looking at it like a Franco Nevada, which is a metal streamer, different business model.

[00:05:41] They are not leverage, but all that to say not surprised at all to see these names. Yeah, gold is up around 300 USD an ounce on the year. Oh, on the year. OK. On the year? Yeah, I thought you were saying the price of gold.

[00:05:57] I'm like there are short two grand there, but OK. No, it's as of recording, I think, 2315 USD per ounce. Gold has definitely been good this year. Still nothing earth-chattering, but it's definitely been performing well. Now, I do want to caveat this.

[00:06:19] When you do this type of screen on the TSX, you end up with a lot of metals and mining, regardless of how commodities are, because of the boom bust nature of these businesses. So you'll get some up way big that will reach the top of my screen

[00:06:36] and some that are way down on the bottom of the screen, just due to the nature of the company. Now, of course, the underlying commodity helps. That's why you're seeing lots of gold and silver in this list. So without further delay, CES Energy Solutions,

[00:06:50] which is energy and equipment and services, it's up 100 percent. Endeavor Silver Corp, Celestica, Hudbay Materials, Terravest Industries, which I am a very happy shareholder of now, is up 71 percent on the year. Bombardier, maybe Turnaround Play, Artemis Gold, Bird Construction, which I highlighted on the podcast,

[00:07:11] China Gold International, IAM Gold. So that's the list. If I remove pure play commodity names here on the list, you get CES Energy Solutions, Celestica, Terravest, Bombardier, Bird, Haroo Devtech Inc, which is an aerospace company, Softchoice, Sprott, Nouveau. They got taken out, I think. Did that go through?

[00:07:34] Private equity is going for them. Yeah, I don't think the... It's either on the verge of being completed or will be soon, or has already been, I'm not quite sure. Right. It's still publicly traded. It's basically just flatlined at that takeout price of around $44 a share.

[00:07:53] But it was basically a premium of 50 percent takeout on the name when it was listed. So that makes sense. Aritzia has had a bit of a turnaround year, a bounce back year. And Dollarama continues to dominate up 34 percent year to date.

[00:08:11] So that's just an idea of what's been working on TSX, which stocks have been hot year to date, halfway through the year, reflecting back. Yeah, Sprott is interesting because Sprott is... They have a gold trust and that's the way I would go if I were to...

[00:08:27] If you don't want to hold the actual physical gold, but you want to hold it in your account like as a TFSA or something like that. From what I've read, Sprott is probably second to none in terms of that,

[00:08:38] even better than GLD because I think they really physically own everything. So it's interesting to see them there. They have more than that, but they tend to have a lot of kind of trusts or ETFs that are focused on commodity plays.

[00:08:54] I think they also have a uranium one. So it's an interesting business model because they... You know, you have these big ETF providers and they've gone a bit more niche. And clearly, at least this year, it's working.

[00:09:08] And it's funny because it's probably in part due because of the rise in gold and silver and these commodities because those are some of their more popular trusts. Yeah, this is an asset manager, right? Yes. Yeah, that's correct. Niche ETFs.

[00:09:24] I mean, that's the name of the game, right? You're not going to be able to compete on these broad-based low-cost index funds. When you compare Vanguard and BlackRock, just how are you going to get any fund flows unless you niche down and provide something different?

[00:09:41] So I think that they've realized that and doubled down on it. Yeah, exactly. And still like a kind of pretty small company at pretty much 1.1 billion market cap. I'm seeing one and a half. Oh, I was looking at your sheet here on the dock. Oh, that's in USD.

[00:09:59] Oh, USD. Yeah, you got to toggle... I'm like, can I not read anymore? You got to toggle currencies on the screener just to keep everything normalized when you screen across different geographies. No, I think that's a good overview just to look at what's doing well and whatnot,

[00:10:16] especially on the TSX. It's hard to avoid the US market sometimes because there's just so many companies that are there that clearly made the news. Like Nvidia has been probably stealing all the headlines now for a better part of a year.

[00:10:31] So it's kind of nice what's happening in our own backyard. Speaking of the S&P 500... So I'm going to make the case that it might not be the best idea to use the S&P 500 as your benchmark, depending on what your goals are.

[00:10:48] So I'll caveat with that because we do talk about it a lot. I personally try to use it more as my benchmark because my portfolio... I'm still relatively young. I'm going to be 40 in a couple of years, but still I think I have at least 20 years

[00:11:03] of investing in front of me if not more. So I have a lot of time in front of me. So the way I see it is like it's an easy thing to compare myself against because it's an easy alternative to just buy the S&P 500.

[00:11:17] But again, I think it really depends what you're trying to achieve. And I did a poll on Twitter and it was just interesting what people were saying. And I was trying to play devil's advocate here. But before I get started, anything you want to comment on that?

[00:11:33] No, I mean the S&P 500 is a benchmark that has that name, brand and power. And this is the whole power of the index business, whether it's S&P or MSCI or whatever benchmark you're using the FTSE. Name, brand matters. But that doesn't mean it's the best.

[00:11:58] It just means that it's the most well recognized. And well recognized matters if you're trying to find common ground between performance and benchmarking between different managers or different options. So I think that what you're saying is going to make a lot of sense.

[00:12:15] Yeah, because I think a lot of people get into the trap of saying like they'll look at the returns of a pension fund, for example, and say like, wow, they return like 8% or 7% Look at the S&P 500.

[00:12:29] It was 15 or 20% last year, which I think is missing the mark. You're not comparing apples to apples. You're comparing apples to oranges because pension plans have to have a pretty big amount of their asset into fixed income.

[00:12:43] So it just doesn't make sense to try and compare them to the S&P 500 because that's never going to be their benchmark to try and get better returns. And don't get me wrong. I think I've been quite critical about pension plans on the podcast.

[00:12:58] And I think, you know, and we've had that talk, especially when it comes to private equity, even private credit that pension plans have been going into that there could be some trouble brewing in those two kind of areas of investments.

[00:13:11] And it was the case was made, I guess, Wall Street, which is great at marketing that it was the next best, greatest things. And now we're kind of seeing cracks happening there. Or, you know, maybe before I get on to that, maybe private equity

[00:13:28] getting a little bit desperate. It's kind of weird. And this wasn't prepared, but the amount of P deals that are happening in Canada, there's been some pretty high profile ones. I'm thinking about Indigo is one that happened like two, three months ago. Newvay that we just talked about.

[00:13:45] I think we had Dan was a holder of Parkland Corporation. They're being taken out private. I think there's talks you were talking to me about. GFL. GFL. Like it's it's pretty wild, especially when, you know,

[00:13:59] when we talked about the IPO market last year, that was one of the things that EY mentioned is that PEs or private equity funds are struggling because the IPO market is not very favorable to, you know, these companies going back to the public market.

[00:14:15] And a lot of instances, there's not enough demand there. So they're missing out on exit strategy. And that's one of the big exit strategies is to IPO those companies later down the line. Yeah, you're seeing a lot of private equity activity taking some of these

[00:14:31] single digit billion and market cap companies private. And look, the capital that they're sitting on and there's a lot of potentially distressed assets in companies that raise too much money or burning too much cash, right sides the ship.

[00:14:51] Or you get some of these companies that are not loved by the public markets that are potentially good businesses. So a lot of fresh capital sitting on the sidelines for private equity to come take them out. And they're trend followers this industry.

[00:15:04] And so, you know, these assets are getting snatched up in Canada and it creates a bit of a frenzy. Yeah, and congrats, obviously, if you had some of those companies that you're sitting on nice gains here.

[00:15:17] But yeah, and there's a few reason, of course, like the S&P 500. If you're looking to have, you know, all equities and an easy way to diversify, like it's simple and it's easy to buy.

[00:15:28] Like there's there's multiple ETFs that are like below 10 basis points in terms of fees, whether you're looking at listed in Canada or the US, you can have it hedged. You can have them equal weighted. There's all different kinds of ways to invest very easily in the S&P 500.

[00:15:44] They usually have low fees, like I just mentioned. It gives you instant diversification. The total return since its inception have been around 10 percent. Obviously, it'll kind of vary depending on the time period you're looking at. But we can just say about 10 percent right now.

[00:16:00] And like I've said before, I mean, the S&P 500 for some investors just does not make sense. So even if we forget about pension funds here, the first one is there are downsides. We talked about this recently when the ETFs that I went over.

[00:16:16] I mean, it's still quite concentrated for a diversified ETF. It's heavily weighted as of April 30th, 2024. The top 10 holdings were 32 percent of the index. I'm going to go on a limb and say it's probably higher than that now just because Nvidia has been on a tear.

[00:16:33] There can be also some significant drawdowns if you're all in on equities and more specifically the S&P 500. And for some investor, beating the S&P 500 should not be the goal. And again, I'll give some examples here.

[00:16:47] The first one that comes to mind is definitely if you're someone who's in the capital preservation stage. So it could be it could be that you're close to retirement. It could be that maybe you had a large inheritance that kind of sets you up for life, right?

[00:17:02] Some people have a large windfall of money where, you know, they probably their main goal is to have decent returns, but, you know, also avoid significant drawdowns because they're almost all set. So I understand a lot of people listening to this podcast won't be in this phase.

[00:17:22] They'll be in the capital accumulation phase. But when in your capital preservation, Mones, it means you have sufficient asset to meet the goals that you've established. And for most people, like I said, it will be retirement. And let's take the example of retirement.

[00:17:35] Say you're a year or two from retiring, but you're in this situation where you have more than enough capital to be able to retire comfortably until your until your time is up with life. Because obviously we we all have an expiration date.

[00:17:49] If you don't let us know, I'd like to live forever. So, you know, if you have a way to live forever, I'm going to be in a frozen chamber like Dr. Evil. Yeah, exactly. And obviously this is not retirement advice investment advice.

[00:18:06] I'm just going to say here what I would probably look at doing if I was just a couple of years away from retirement. So my number one goal is to ensure that I can comfortably live without having to worry about equity markets crashing and impacting my retirement.

[00:18:22] So how can I achieve that? Well, being 100 percent in equities, I think would be pretty risky in retirement. That's because no matter what kind of equities you own, if there's a broad based market correction or crash, you will not be spared.

[00:18:35] And, you know, even if you have dividend stocks, the dividends can be cut or stop altogether. And dividend stocks can still go down with a big market drawdown. And if you have a long term horizon and don't need to draw on the funds

[00:18:50] for retirement, it is definitely a different story. But when you retire, for most people, they won't have the luxury. They'll need those investments to fund their retirement. So that's why my goal in this kind of situation would be to maximize my returns while lowering volatility.

[00:19:06] And we've talked before why volatility should not equal risk. Risk is really the risk of losing capital, right? But when you're retiring, that volatility can translate into the risk, because if you're forced to draw down when your portfolio is down, then you bite, you know,

[00:19:28] you have a big chance of losing money here. I see you nodding, so I'll let you chime in here. That's really well said. Volatility is not risk. Capital loss of capital is risk. However, volatility equals loss of capital

[00:19:46] if you are a forced withdraw of said pool of capital. That's that's the caveat, right? Like for someone like you or I, volatility not equal sign risk because volatility equal sign opportunity when we're not forced withdrawal, forced liquidators of equities.

[00:20:06] If you are a forced liquidator of equities in your drawdown plan for your retirement, that's when large market drawdowns are risky. And that's, you know, kind of 101 in portfolio allocation is matching the allocation to your current plan. Exactly. And if your current plan is drawdowns,

[00:20:29] then it needs to be taken into account. Yeah, the worst thing that can happen in investing and, you know, I'll even say like if you own your home, right? Like, I'm not going to say that's investing, but just for

[00:20:40] for the sake of this argument is being a for seller. You can be fortunate and be a for seller in an up market. But if you're a for seller, you just you can't control, right? That so if you're forced to sell, whether markets are ups or down,

[00:20:55] you're going to have to sell. And that's a situation that especially in retirement, you definitely want to avoid or at least hedge against it. At the very least, a minimizer is that you'll have to for sell

[00:21:07] when the markets are not doing well or your holdings are not doing well. So if I were to retire a couple of years away, I'd still have some equities. I think it's a mistake personally to get rid of all your equities. You just have to balance appropriately.

[00:21:21] And then I'd have some short term treasury bills. My preference, as everyone knows, is US treasury bills. But again, it could be Canadian government treasury bills. Another strategy here that I know a lot of people listen to this podcast

[00:21:34] a day or two is a ladder GIC strategy or fixed maturity bonds would also be an option, although I would stay away from bond funds as those have interest rate risks. So you have to keep that in mind. Individual bonds here, I think, are better

[00:21:50] because you can actually hold them to maturity. And as long as you ladder it correctly, you won't need to sell them at a discount if there's some interest rate variation. The idea behind this is that I would want to have those available

[00:22:06] funds to essentially fund my expenses for a rolling five year period. That's definitely not probably on the more conservative side. But the idea is you want to be able to have something that's relatively safe, that you can kind of go and dip in and fund your retirement.

[00:22:24] And you don't need to go into the equities portion. And you can be a bit more strategic when you decide to trim those equities to fund your retirement and not avoid that kind of force selling. Like I just mentioned personally, I would have some gold exposure.

[00:22:40] I would likely have some real estate exposure as well. Bitcoin could be a consideration if it becomes less volatile over time. Keenly aware that the volatility right now and, you know, sits in deception is quite high, so it would be very difficult to manage in a retirement portfolio.

[00:22:57] But you can still navigate that with just a smaller allocation if you're comfortable with the risk. Obviously, with this type of portfolio, I think it's it would be unreasonable to expect to beat the S&P 500 or at least have it as your benchmark

[00:23:13] because it's a completely different, you know, set of assets. And again, you have different goals, right? If the S&P 500 in your benchmark, I hope that you're holding most equities because that's the benchmark that makes sense. But in this situation, I explain it's not, you know,

[00:23:32] it's not what you're holding or that's not what I would be holding in this situation. So it would be unreasonable to use the S&P 500 as a benchmark. I haven't done any research on what kind of benchmark,

[00:23:44] but I know there are some indices out there that will track different kind of assets. So something like that would probably be probably make a bit more sense. And let's not kid ourselves and let's not forget. Let's not have a short memory.

[00:23:59] You know, the market is essentially here at all time highs in 2002 from, you know, when the bubble tech bubble burst in 2000 to its lowest point, 2002. Investors lost a significant amount of money, over half of the index in 2008.

[00:24:22] Due to the trough of 2009, you lost more than half of your money holding the index. In 2020, you lost about 32 percent. I think what it was peak to trough drawdown on that on that money. In 2018, you had a big drawdown of around 18, nearly 20 percent that people forget about.

[00:24:48] This is normal. This is what you sign up for. And if you haven't experienced large market drawdowns, don't be surprised when they happen because history tells us that it's the only thing that is normal for them to happen.

[00:25:07] If you zoom out over a long period of time, the constituents of the set index, in this case, the S&P 500 can have continued to compound wealth over time. And the selection process has worked and they've bought more of what's worked

[00:25:23] and less of what hasn't and over time. And that strategy has worked extremely well over a long period of time. And, you know, investors have compounded their money at a very satisfactory turn over that time. But let's not forget.

[00:25:35] There have been massive, massive drawdowns on what would be considered an index of largely blue chip dominant companies in the U.S. And so it's important to study history so that you're ready in the future

[00:25:52] and that it is not a shocker that these things can happen and they can draw down for a long time and take a long time to recover. It is not normal in 2020 when you lost 30% of the index and have an all time

[00:26:06] high nine months later. That is not the norm. That is a that is, you know, kind of an outlier in statistics when it comes to the performance of the S&P over a long period of time. Yeah. So I think that that's really important to remember.

[00:26:19] Yeah. And I think just to build on that, I think it's important for people, especially those who started investing like, you know, mid 2020 or later. There hasn't been any significant market drawdowns. There's been some small ones here and there, but nothing prolonged.

[00:26:33] Even if you go back to 2008, 2009, like it's easy to say that you'll react well and you'll just, you know, continue investing. You won't panic. But I think it's worth for people haven't gone through that to just reflect on the possibility of that happening because it will likely happen

[00:26:51] at some point in time. It's possible that we will have a year or two where the market goes sideways or trans down. You know, even March 2020, it kind of rebounded pretty quickly, right? So I probably avoided a lot of people panicking and just kind of,

[00:27:06] you know, you blinked an eye and basically markets were back where they were at. But I think it's just a good reminder for people to just go through that thought process, because if you think markets are always going,

[00:27:20] you know, up in the right, you may end up having kind of a reality check when that's not the case. And you can look at charts all you want. But I think it's good to go through that exercise and just kind of be

[00:27:33] honest with yourself and just prepare yourself at the very least of that potentially happening in the future, because it's not, you know, it's not necessarily a fun experience. I mean, I know myself, I know I won't panic.

[00:27:46] I mean, I've seen drawdowns with Bitcoin that were way more severe than that. And I didn't panic and sell. So I know, I know you're the same, right? But I know that not everyone is like that.

[00:27:57] And you don't have to look very far on the web or talk to people, you know, that had equities. And then there was a drawdown. Like, I'm sure you can ask a few people that started investing prior to 2008.

[00:28:10] And you'll probably find a few people that kind of sold when the markets were going down. And maybe missed out on gains for five, six, seven, eight years because they were snake bitten because of that. Yeah. Even if you just look at like SPY, the really well-known ETF

[00:28:26] since its inception, you basically were flat slash lost money if you bought stocks in 2000 all the way through to recovery post great financial crisis in like the 2010s. That is a long 10 years. Those 10 years feel like a lifetime when you're down slash

[00:28:51] trading flat for a really long time from your initial purchase price. And that, that can be really, really painful. I remember talking to Chris Meyer and he said, it's not painful when stocks go, your portfolio, you know, goes down

[00:29:09] because if you have a lot of high conviction, you can continue to dollar cost average into them. It's when you have something trading sideways for potentially a decade and that has happened over, over history multiple times. That's where it gets really kind of frustrating and, or,

[00:29:28] you know, you questioning everything. And I'm going to add to that, think about it for that chart that you were showing. So for the SPY, you know, people who would have bought it when it started, so still early 2000, I think 2001 right

[00:29:43] around there, they see their investment going down 30, 40%, whatever it is. And during that same time period, if they're Americans, their neighbor bought a house or bought an investment property and that just keeps going to the moon. Imagine how hard it is to not sell your investment in

[00:30:01] that situation when you see your neighbor who's crushing it with real estate. Clearly he's gonna, you know, few years down the line, he's gonna take a big hit with it, but nonetheless, it still shows that it may be very difficult or your other

[00:30:15] friend that just kept the money in his bank account, getting three, four, five percent, no risk. It's very easy to feel stupid and think you're like, you know, you're not smart for buying the S&P 500. So I think it's just, it's important to just remember

[00:30:31] these things and try to go through that exercise as honestly as you can because, you know, there's probably some variance of that that will happen at some point in the future. I don't know when Braden doesn't know when, but I'm pretty confident saying that something like that will

[00:30:46] happen. Let's switch gears to a passage I found from Bruce Flat, who is the CEO of Brookfield. I think he's been the CEO since the year 2000. He's been at the company for a long time. I love how the executives have such a tenured

[00:31:05] experience at Brookfield and a lot of skin in the game. Those are two things that I really like to look at from management that, especially if they are in the business of creating shareholder value via M&A and being an asset manager. So here's the passage.

[00:31:22] It's decently long, but there's a lot of interesting tidbits in here and we can break it down after. Quote, value investing was born when there was no internet, social media or 24 hour broadcasting. At that time, value investing focused primarily on finding information about a company which was not

[00:31:44] known by others, enabling one to buy a fraction of a business cheaply in the stock market. Today, with instant information available to all investors on their smartphone, the advantage one investor can have versus another is the ability to interpret that information better.

[00:32:03] What is dramatically different today is the volatility of the market. Which is often caused by information that is totally irrelevant to the business. Investors should always remember that when they buy a stock, they're buying a portion of a business. Said inversely, a business shouldn't be valued

[00:32:21] minute by minute, rather its value built over decades. Over time, if we do our jobs well, that value will continue to increase. If we each owned these assets privately in a partnership together, we would not really care about the stock market or what the news reported.

[00:32:40] Over time, we would talk about how we were doing and the measure of the cash flows in our business. But we wouldn't even attempt to value the business on an hourly, daily, monthly or an annual basis. We would make all of our decisions with a

[00:32:55] mindset that we are working for you running our jointly private business. We always try to explain the real story behind the numbers for the longer term to enable you to understand the business like a private owner. End passage. Lots of gold here.

[00:33:12] First off, talking about changes in value investing from back in the day to now. Before looking at a value line or old Moody's manual, the data is out of date. It's not up to date. The news is not constantly being reported on or being automated by computers.

[00:33:29] So potentially finding mispricing was easier. And then in 2.2 around, look, public markets are valued on a mark to mark basis on a second intraday basis. They have crypto markets being valued on a second to second basis 24 hours a day, seven days a week.

[00:33:50] There's just so much noise going on. And he's basically saying, look, if we do our jobs right, none of that should be super relevant over time, especially if we're talking about decade periods here. So I just really like this passage from the shareholder letter in 2015 on Brookfield Asset

[00:34:09] Management's 2015 shareholder letter from Bruce Flat. Yeah, no, I think it was a good passage. I mean, it's something you have to get comfortable with as an investor, right? Either you don't look at the tickers and you delete all the apps from your phone and

[00:34:24] you just have it on your desktop and you kind of just look at the numbers, make your own assessment of the company. And I think it's that's a good reminder of that. And just having conviction and looking at the actual business, I think, is the

[00:34:38] other thing I get from that because I think a lot of especially with mainstream media, if you look at CNBC, BNN, Bloomberg, it's a lot of it is just sensational, I would say, right? People just to get people trading, which

[00:34:53] and CNBC, I think BNN as well, to some extent, is they bring a lot of just fun managers pumping their positions. And I think if you want to find good value in the stock market, especially if you're picking stocks, a lot of it will be

[00:35:09] based on your analysis being a contrarian and investing in actual business and kind of just disregarding the noise. Yeah, totally agreed on FinChat. We have a feature. I don't know if we've ever messed around with this called business owner mode. Yeah, I mean, toggle it on and you

[00:35:27] don't see any prices. Yeah, I tried it a while back. Yeah, pretty good. It's kind of fun. Yeah, I don't know how much people actually use it, but it's kind of fun, right? It's this idea of, OK, if you really are a long term investor and

[00:35:41] you are going to try to think like a private owner and own a piece of this equity and hold it for a long period of time, you know, price action over the last three months shouldn't matter. Price action today probably shouldn't matter. And so that's the whole idea.

[00:35:56] You can toggle it on and then you don't see any prices. It blurs out the price chart. It blurs out the the short term movement. So it's kind of fun. No, I like it. Yeah, it's a good it's it's just a good exercise for people to do.

[00:36:09] All right. Last on the list today, a question from a joint TCI subscriber was. So, my brain, which valuation ratios do you look at? And the answer, the easy answer here all of these is it depends on the business. And one of the main reasons for that

[00:36:34] is accounting. And I think I've mentioned this many times on the podcast before, if you're a self-directed investor, you're we don't expect you to become a CPA, a professional accountant, a tax expert, you know, be able to do complex accounting tricks and schemes

[00:36:55] and uncovering all kinds of stuff. But the basics are the math and the language of business. And so familiarizing yourself with just a base level of accounting really, really helps when looking at financial statements. And I don't mean that as to be intimidating.

[00:37:14] I mean, just knowing, you know, kind of 101 will give you the superpower and language of business. And some examples of that is the metric of free cash flow and banks doesn't make sense in accounting. So using price to free cash flow on a bank is a completely useless

[00:37:37] fugazi fugazi number. Looking at a real estate investment trust P E ratio is next to useless because I got to add back depreciation. I got to back up proceeds of if they sold a building adjust for capex. Next thing you know, you have adjusted funds from operation

[00:37:57] derived from net income. Now we got something really useful price to adjusted funds from operation. Accounting details matter here and I know it's boring and I know it's not particularly sexy. The good thing is, is a lot of these platforms now will do all

[00:38:15] that kind of backing out accounting for you. But it's important to kind of have some base level understanding of I saw a post on Twitter that was comparing all the banks on a free cash flow metric. First of all, how did they come up with the number?

[00:38:33] First of all and two that just doesn't make any sense. So it depends quote unquote is neither a very satisfying or particularly helpful answer even though it is the real answer. So here is my little field guide for some go to metrics and few select types of companies.

[00:38:53] This is not an exhaustive list but rather a list of go to's and you can probably pile on with some as well of where my brain instantly goes. Valuation ratios are sometimes referred to as multiples. So same thing I interchange this all the time.

[00:39:07] I'll say a valuation multiple valuation ratio. Same thing. My default for screening and comparing companies broadly across the market of stuff at least I look at which does not include banks is enterprise value to EBIT. EBIT can sometimes also be referred to as operating income but that metric

[00:39:29] basically is enterprise value. So the market cap plus the debt subtract the cash. So that's that's a very holistic figure of looking at what the business is worth today on the public market divided by normal EBIT. And what that metric is is it's looking at more

[00:39:50] normalized operations of the business. So earnings before interest in taxes and we break out on Finchette too. It's like EBIT from normal operating operations which is super helpful if you're screening across a lot of different metrics that remove a lot of weird nuances in there.

[00:40:10] And so now I get a pretty clear picture across a lot of different industries enterprise value divided by EBIT. All right. High growth maybe not profitable businesses. I like enterprise value to sales. It helps me kind of normalize different things. Some people also like price to

[00:40:31] gross profit for these types of companies. I think that that's fine as well. If I'm feeling a little bit spicier and I feel like doing a little bit more work enterprise value to annual recurring revenue if it's a software company is even better. That's how most private

[00:40:48] transactions are valued in software today is looking at enterprise value to annual recurring revenue aka ARR. Number three more mature companies. I will look at price to next year's cash flow free cash flow or a price to forward EV to EBITDA. That's also good too.

[00:41:08] And then REITs I mentioned before price to adjusted funds from operation. You get where I'm going with this with this field guide is coming up with a few things that I'm looking at quickly to get a quick idea of where the business is trading at today

[00:41:23] for different types of companies not necessarily different industries but different types of companies like I'm not going to value a high growth not profitable startup versus the same as how I'm going to value Coca-Cola. Like they're just at such different levels of maturation.

[00:41:42] Yeah yeah I think that's a great point and I would say on top of that when for people are starting to learn is just be curious. So when you look at things and if something doesn't make sense I mean I know I was there and sometimes I'm

[00:41:57] still there depending on what I'm looking at is just do your research. I mean now with LLMs like Chad GPT for example like I just for fun while you were talking about a FFO I'm like oh like I asked Chad GPT like what is a FFO.

[00:42:12] Why is a FFO good for reads and it gave me a really clear easy pretty easy to understand with an example as to why it's a good metric to use for reads obviously you have to make sure that the information is accurate so I would always

[00:42:27] recommend that people double check with another source like an investopedia or something like that but if you're curious and you see something that you don't understand it could just be like basic stuff you're like okay like I'm not quite sure what EBIT is or EBITDA is

[00:42:43] you know just type it in just do a bit of research and if you're curious that way I find that's that's how you learn the best. So we can we can talk about it you know you and I we can say that we'll use the different type of

[00:42:58] metrics depending on the type of companies but there are a lot of good tools out there that you can use that you can easily get access to and as long as you have a little bit of curiosity just as the question I mean it's something that that is

[00:43:14] very useful for people. Yeah I just typed into the Finchette co-pilot why should I use a FFO explains why it's useful for real estate investment trusts this is more accurate measure of cash flow better indicator of dividend sustainability and safety comparison across different real estate investment

[00:43:31] trusts important for making decisions around valuation and provide to provide more give me a certain company and I'll give you the FFO number at the end. It's like OK got it like pretty easy like this is back to the to roundabout way of what Bruce flat was saying

[00:43:50] is like there are pros and cons from for information being so available it's like the cons are obviously people can be led to over trade they get an alert on their phone stocks up 5% of stocks down 5% instantly sets off a emotion in your brain especially if it's on

[00:44:10] the downside like losing money feels a lot worse than making it is like studied by psychology that's been proven time and time again. So so there's that downside but then the upside is like if you are curious like Seymal mentioned you have like a superpower

[00:44:29] right now like it's never really been easier or better in my mind to be self-directed investor. Yeah yeah it's just having the discipline on one hand and the curiosity I mean I think most night I end up like you know I'm reading things and there's like

[00:44:45] your own there might be an article or paper that you know I understand the argument and the whole thing about the paper but maybe there is going to be a couple of concepts I'm not 100% sure on so I will use chat GPT or Google it

[00:45:00] and I will look it up and understand what it means and maybe it's our personality type but I enjoy kind of finding stuff I'm not 100% sure and just keep learning. I don't know that's what kind of drives me I just want to learn about new things and it's

[00:45:14] I mean if you're you want to be a good investor and you want to learn about it be self-directed I think you just have to embrace that you know it's not going to come overnight if you're always curious and you do search it you're

[00:45:27] going to learn a whole lot and you're going to probably remember it a whole lot more than even like when we talk about ourselves right because you're reading it I know for me like whenever I read something I remember it a whole lot more. What was your school

[00:45:41] memorization study hack for me it was the classic just write it out. Yeah like biology biology and like grade second art which would be like grade nine I think on the Quebec side. You had all these like you know terms you had to remember it wasn't

[00:45:59] like it was basically a memorization test like you just had to know the terms. I remember I think I just got to know the mitochondria. Yeah I think I remember like two three hours I spent for that test I did exactly that I would like write the term

[00:46:15] like 10 times and then move on to the next one 10 times and yeah I would remember it. I remember first year university because I'm a math math guy and biology was just straight up memorization and we had this first year course. I think I was in like

[00:46:32] third year and they made us take this first year biology course that was all with the science students for my engineering degree and I'm busy with like fluid dynamics you know static mechanics computer engineering like electrical engineering stuff that's super difficult. I really don't even

[00:46:50] know how I passed any of it but the class that I literally almost flunked and got like a 37 on the midterm was this birdie easy first year biology course because I'm like I can't I'm not just going to sit here and memorize all this crap like what

[00:47:09] the guy. This is this is where I hate school. This is where I hate the current form of education for for for young people and it just doesn't work for everybody. No no everyone a lot of people have different ways of learning so that's totally understandable but yeah

[00:47:23] that's the one that comes to mind the most because for me math always came pretty easy because there was logic behind it but memorization like it's just just got to learn it. You just got to get into your head. There is not really logic behind it and

[00:47:38] I don't think it worked well long term because every time I go to the doctor or physiologist something they'll be like they'll say this specific term I'm like so you're saying my leg. OK OK. Yeah yeah. Let's let's dumb it down for the people who

[00:47:53] cheated in first year biology. Thanks for listening to the pod guys. We appreciate you very much so you can see our beautiful faces for radio on Join TCI dot com so you won't post the video version of this podcast on there as well as our monthly portfolio updates.

[00:48:09] You can dive into myself Dan Kent Simone's portfolio every month and if you haven't if you haven't already bought a ticket for the Blossom event you can I'll be there in person. It is on Tuesday June 25th at the Stacked Market in Toronto. You can buy a ticket

[00:48:26] by searching Blossom Investor Social Eventbrite. If you type in those words into Google you will find the event. Bunch of self-direct investors. We're going to do a little conference that night. I think I'm on one of the panels. It's so funny. I I get invited to like

[00:48:43] panels and discussions. I'd say more and more over the years through the podcast and the chat and whatever else right. They just assume I am the AI guy now when there's so much to this broad field. It's like I don't know everything about AI. I mean

[00:49:07] it's really funny. We get it oftentimes to our people will ask us question. It's like what do you think about this company? It's like I'm not a human repository of all the publicly listed companies. Like I mean I've heard of it or something like that.

[00:49:21] But that is one thing that I found like comes up a lot is just people assume that like we know every single company out there. There's a lot of companies that are publicly listed even just in Canada. Some some micro cap in Western Europe

[00:49:36] like I have to get back to you on that one. That's going to I think there's sixty five thousand global public active public listings today. So there's a lot to know. Yeah. There's a lot to Yeah. That's why you should get Finch out. Yeah.

[00:49:54] Dude, I really do think though screening is such a good way to like look at new ideas and understand like a little bit what they were. So I put I made this post on Twitter and if you saw this, but I wrote would there be interest

[00:50:08] if we AI generated the old Moody's manuals so you can just kind of like grab a book while you're on the train and read through the descriptions of a bunch of companies you've never heard of in like real paper form. And yeah, of course,

[00:50:23] the data will be outdated, but maybe updated every quarter of a year or something. And I was shocked at how much appetite there is just for people to get some sort of idea generation mechanism. And I understand that. Yeah. That's why I made that post

[00:50:40] on Twitter about like, you know, I gave people some parameters and I'm like, give me a description of the company, not just the ticker, because I will skip over your tweet. Give me the description, like a short description, 11 elevator pitch of the company

[00:50:56] along with the stuff I asked. And I'll have a look because then I feel like I'm not kind of wasting my time and just taking a ticker. And then I look at it. I'm like, OK, I don't like this company at all. Yeah. Next. Yeah. Thanks for listening.

[00:51:11] We'll see you in a few days, folks. Take care. Bye bye. The Canadian Investor podcast should not be construed as investment or financial advice. The host and guest featured may own securities or assets discussed on this podcast. Always do your own due diligence

[00:51:28] or consult with a financial professional before making any financial or investment decisions.