Top 5 Canadian ETF by Inflows and Dealing with Questionable Management

[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 minus Braden Dennis as always joined by the extraordinary Simon Belanger

[00:00:26] So on Nvidia today as of recording is the most valuable company in the world Analyst estimates are through the roof through 2026 You and I sure have our skepticism around how cyclical this industry may be even if their backlog is through the roof

[00:00:44] But you know, hey, it's uh time will tell as as you as you said it time will tell Let's play a game to start today's show. Let's call this or that There are two stocks here that I have that have both risen nearly 2000 percent

[00:01:02] Since the first quarter of 2020 One of them is in video And the other one Is not a tech company. It is in the apparel space Do you have a guess on what it may be? The stock is up 1900% nearly yeah, so it's a 20x since then

[00:01:23] I think it may be a company that was big back in the day when I was Correct. Yeah, I can't remember what the name is. It just shows that I I didn't uh Is it American apparel or something like that? It is Abercrombie and Fitch

[00:01:41] Which owns that brand and Hollister That's right. The company has had a bit of a turnaround from its days of Glory and the market has rewarded it very much so This is why investing in fashion is so so difficult

[00:01:57] Or you just take whatever was in like 20 years before and then it just kind of loops around back again if the company's still alive That's right. Yes. What's old is new again with fashion as as as always. All right next up this or that

[00:02:12] We have the blue line is Nvidia of course up 20x since then The orange line is a stock up 4200 Well over a 40 bagger during that time it is a Beverage company. Do you know what the stock is? Is that like the celsius thing?

[00:02:35] Yeah, bing bing. We have a winner celsius stock is up Huge, you know, it's it's and it's its growth has been very legit. It's its distribution has been wild It's now in all a lot of the major retailers. It's in every convenience store. I see that

[00:02:55] Every time I walk by a circle k the kush tar asset It is like they advertise that they sell Celsius there That's how I always recognize for the hot new thing is the convenience stores are saying

[00:03:08] We sell this here come get that here and Celsius has sure made a name for itself and Honestly, I think I look at these energy drink companies that have gained so much traction

[00:03:21] Their competitor seems to actually be coffee people are replacing coffee in the morning with these drinks. I don't know I don't have any knowledge on that health wise, but I see people drinking many of these per day

[00:03:34] That's got to be a ton of caffeine. Yeah. Yeah, they do I mean I almost bought one the other day because I used to back in my poker days drink a lot of these and my younger days I mean red bull vodka

[00:03:45] Yes, red bull was the predecessor to Celsius for those of younger listeners that are not familiar with the brand But I used to do like that which apparently was not good because it gives you a little bit of you know

[00:03:59] kind of upper and downer at the same time but Um, I used to drink those I switched like four three four years ago Just a straight coffee just because I think it's more natural. You know, there's the one ingredient like these

[00:04:14] drinks I find there's a whole lot of different ingredients and I just saw it for me even like pre workouts that I used to drink a whole lot

[00:04:23] I just figured you know what? I'll just have a coffee or an espresso and that's it from all of my research black coffee In moderation is very good for you from from all of my research keyword moderation In moderation in June 2021

[00:04:40] Celsius did 65 million in sales for the quarter and their most recent quarter they did 356 Million in the quarter So they're on a trailing 12 months sales run rate of 1.4 billion Which has grown by a compound annual growth rate of 63 percent Since there

[00:05:03] Since they have their their filings available. That is um some pretty remarkable growth in 2021 and 2022 this drink Took off at a meteoric pace and the stock price has been rewarded ever since it looks like they went public in

[00:05:20] This day exactly in 2019 according to sun june 18th june 18th 2019 Is the first quote I have of when their price their stock traded started trading I don't know if this is split adjusted or whatnot, but a dollar 36 On today's price in is now trading for 62 73

[00:05:40] Which by the way is on a 34 drawdown. So maybe Maybe time to uh to look at the name here. Yeah, it still looks like it's pretty Trading at pretty high multiples, but who knows what's high in terms of multiples anymore with this market

[00:05:57] So maybe it's just a value stock at this point Just strictly off vibes. That's that's the market the market's moving off of Momentum is at its serious peak I see the the technology sector Of the msei is trading at its highest price to sales ratio

[00:06:16] Which had a huge drawdown in 2022 It is now at all-time highs again in terms of multiples on sales So well, let's kick off the episode here today. You're going to talk about etf in flows. Give us a quick update

[00:06:31] I'm curious to see how persistent etf flows have been and then we're going to talk about How to deal with questionable management and an exact situation that I am in personally So i'm going to walk you through how I am thinking about a company

[00:06:44] I own and some potential Turmoil the company's been through and how you can think about dealing with that Companies that you own in your portfolio. So take us away. Yeah. Yeah. Well, first of all, I mean

[00:06:56] For those who've been listening for a little bit, you'll remember we used to do this a bit more once a month so national bank actually has Uh etf flows that come out for each month

[00:07:07] It gives a year to date and the month information they do it for canadian etfs But also us etfs and I just happened I had a few topics in mind for today's recording

[00:07:19] And I happened to check that and I noticed they were still doing it because for a while They stopped doing them and I don't know exactly when they started again Which I was pretty excited

[00:07:29] I decided just to do that because I think it provides a really good look of Where the markets are going especially in Canada some of the divergences that we'll see with the us So like I said, it provides I'll talk about the monthly inflows

[00:07:43] But also the year today just to show that the trends that they're kind of showing here It also provides etf flows for a bunch of different asset classes including equities bonds money market funds crypto Even all in one or multi assets etfs. So it provides all of that

[00:08:01] And here are some key takeaways for Canada So there's been some consistently strong net inflows for Canada since the start of the year The weakest month was January but just shy of four billion in terms of inflow And the strongest month was February with almost six billion

[00:08:19] Of course, I think I think you would agree that makes sense because a lot of people make contributions before the rsp deadline Trying to get some money in and clearly, you know, there's going to be a lot of money from those contributions

[00:08:31] That will go into etfs. So that was not a surprise to me The second year take away that I have is year to date the most inflows were in order of Importance. So it was us equities not a big surprise

[00:08:46] And it's funny because that was 9.1 billion and I was talking to Dan kent And he was saying that they're getting at stock trades dot c more and more people looking to invest in us index etfs That were more interested in Canadian equities before before that

[00:09:03] So I think that kind of aligns with that there. I mean look like let's not kid ourselves the tsx has been a dog It's the tsx has been an absolute dog compared to owning us equities

[00:09:16] Uh, you and I have been doing this podcast since 2019 telling people. Hey look, there's great assets in Canada But you're you're doing yourself a disservice by not looking at the large economy South of the border here and owning pieces of some of the greatest enterprises on earth

[00:09:36] You know and it's so easy to do like there's not a lot of friction beyond currencies and there's easier ways and more Efficient ways to deal with that nowadays. So I am not surprised that the tide is turning. I mean there's just Not much sectorial diversification

[00:09:56] In the tsx you're super concentrated in the big banks A lot of names with negative amortization all over them limited tech options and frankly just poo performance right like that's a

[00:10:13] The accumulation of those over time people are going to be looking more and more to the to the u.s. Market or Or internationally beyond that as well. Yeah, exactly and the international is the one that comes in second at 6.5 billion

[00:10:26] Inflows compared to the u.s at 9.1 fixed income not surprising with rates being as high as they are 5.5 billion so it is quite attractive when you can get Especially short-term treasuries. I've been a big proponent of that. You don't have the duration risk

[00:10:42] So it's short term. You're still getting if you invest in Canada 5% if you invest for us treasuries above 5% So that's very attractive my view, especially if people are looking to get some a little bit less risk in their portfolio

[00:10:58] Canadian equities came in fifth behind multi assets and they had 1.2 billion in net inflows So at least it was net inflows the notable outlier and this will not come as a surprise if you've been listening to the show

[00:11:12] Was crypto assets in canada etf that saw negative flows in may as well as year to date Now this is not surprising because we had the us that did the spot bitcoin etf early in january

[00:11:27] And the fees are literally five times more for the canadian bitcoin etfs compared to the us and I think honestly I think even if you factor in the convert the currency conversion to usd to buy it I think if you have a

[00:11:41] Somewhat medium to long-term time horizon. I think personally it's just a mistake to not own the us one at this point You're looking at yeah, like zero point about 20 basis points or so for most of them versus canadian ones that are 1% plus Yeah, look, I mean these

[00:11:59] These financial products and the companies that distribute them and manage them Are being forced to be more and more competitive when it comes to management expense ratios And it's kind of like get with the times or

[00:12:12] Get blown out of the water in terms of fund flows. So I'm not entirely surprised to see that When I look at this, I'm I am surprised at how much higher international equities are than domestic equities I that number is much

[00:12:29] Different than I was expecting I was expecting to get us Then domestic then international and I couldn't be more off with my my guess here because International equities is almost, you know six times higher

[00:12:43] I mean look the reality is the t the tsx if you've owned the tsx composite We'll use the tsx 60 over the last five years. You've made 30% You know, you've collected probably 2 ish dividend along the way as well Or you could have owned

[00:12:58] Vfv for instance, I'll just use the well-known vanguard s and p 500 index And you've made 90% during the same 93% during the same time frame You've collected a similar maybe slightly lower dividend yield that actually has growth I mean the results have been speaking for themselves

[00:13:16] Yeah, no exactly and I mean the it'll be interesting at least for the crypto assets because at some point They'll have to lower them those fees because they've lost 14 percent of their AUM Since the start of the year

[00:13:28] So I think the calculation we seen it with the grayscale bitcoin etf because they converted from Being a closed trust or an etf when they got approved by the sec and they I believe they've reduced their fees a little bit But their reasoning was that people would

[00:13:44] A lot of people would still stay because of tax reasons and I'm assuming They have the similar kind of reasoning, but at some point you have to Something will have to give and if they want to track some funds because

[00:13:57] At the end of the day these canadian etfs were the only name in the game at least in north america You could get some elsewhere. I think in europe there was a couple of jurisdiction

[00:14:08] But as you get more competition, especially from the the behemoth down south with lower fees If they don't lower their fees, they're gonna Essentially lose out on a whole lot of assets on the management here Yeah, there is an advantage to scale economies

[00:14:24] When you're an asset manager that distributes etfs in terms of the funds fee structure that you're able to supply So there is scale economy advantages and competitive advantages that the black rocks the vanguards And maybe some of the other invest go type names have

[00:14:39] Over these smaller asset managers here. Yeah, exactly because they can attract so much funds, right? So they can definitely, you know lower the fees. It's like a Costco Of walmart and so they make, you know, they have slimmer margins, but they they make it on volume

[00:14:54] And this is the same kind of reasoning here I think enough about the crypto ETFs so the top five ETFs in terms of inflows for may and This is really interesting So the reason i'm saying this for those watching you'll see so the top 10

[00:15:09] Top five in terms of inflows and top five in terms of outflows Are very interesting if you ask me because the top inflow was 502 million For the xic di shares a chorus and ptxx capped a composite ETF

[00:15:25] But then you look at the outflows and there's two that are tsx that follow essentially the tsx tsx 60 here that in the top Five outflows which almost like kind of negates the the number one here. So it's it's really interesting That's one that stood

[00:15:47] Kind of when I looked at this, I think it may be people just switching potentially for lower fees I don't know by hard the the fees of the two but uh, what's your kind of first glance when you look at these?

[00:15:59] It looks like they're just swapping names between One black rock fund to the other just based on I believe xic and xiu are both Are both black rock and then there's the global x names that Cover the same index so Different asset managers same product

[00:16:19] No, exactly and then obviously so you have in the top inflows So you have a number two here the ci global artificial intelligence ETF that one was 554 million vanguard s and p 500 vfv. So the one you talked about 526 Deja vu de america and equity index ETF

[00:16:41] 373 and you had the bmo a Aggregate bond index ETF so zag at 291 and in the outflows obviously I mentioned the two there So number two and two three and four so two you have see high high interest savings ETF

[00:16:56] Not surprising because you have some treasury bill ETFs that offer higher yield now compared to those High interest savings ETF. You had the global x us large cap index corporate class ETF not very familiar I know it's obviously an equity

[00:17:12] Inequity fund i'm assuming people are probably switching for the index here and then you had the x sp Which is the i shares uh chorus and p 500 index ETF this one is canadian hedge So maybe people have been listening to the podcast and ditching those canadian hedge ETFs

[00:17:30] I'm interested in the second one here. There's the AI ETF that's getting some serious fun flows there. I'm looking at the portfolio holdings here on my other monitor Okay, do you want to share it? They are In order from highest to lowest

[00:17:46] Nvidia meta microsoft alphabet amazon apple broad comp A AMD service now taiwan semi Crowd strike adobe data dog. So a rebranded qqq sales force Yeah, look I will forever be Amazed at the marketing that wall street in this case bay street

[00:18:14] Is able to produce just slap a i in the name. Yeah really it's truly brilliant, right slap a i In the name basically go okay, we're gonna take qqq and remove starbucks and little lemon And and and disney and then we're good like that's basically what these are

[00:18:37] and I just don't see the the the purpose of these instruments other than it makes the asset managers a lot of money But it always Amazes me the talent and skill of the marketing

[00:18:53] And what you know investors and maybe the the rias of their clients put them in To to make a few bucks it It's the old same same song and dance that we've lived through forever basically

[00:19:06] Yeah, and I think it just goes to an importance and we've been hammering on that over the last Probably mud but I think even before that for the podcast is just when you look at ETFs Make sure you actually look at the holdings obviously the fees involved because

[00:19:19] Sometimes the name of the ETF you start looking into it remember when we looked at that vegan ETF It just does not make sense. It's a lot of it. The name is just marketing

[00:19:29] So you have to make sure you look at those holdings. It's not very difficult to do It's available for everyone to do it. It's just taking you know 10 15 minutes just looking at it and making sure it makes sense for you because sometimes it'll just be

[00:19:44] Here's how I did it in 10 to 15 seconds. It's not minute. I typed in the ticker. I typed in ETF Here's the administer ci global asset manager. Here's the page. It says the quote It says the fee and then there's two links for

[00:19:58] The fund ETF facts and there's one that says positions It opens up a little pdf I have the whole list in front of me that took seven seconds To to accomplish and I can look at it and go, hmm

[00:20:12] Let me compare that to just the s and p or the qqq and is there any actual real niche differentiation here? Yeah, probably just a fees but But yeah, so and then the us ones I wanted to focus more on the canadian inflows

[00:20:28] But the us one's still interesting one thing that I pulled out was equity ETF flows by sector and themes and This one is quite something not surprising per se, but Essentially if you remove out the technology inflows

[00:20:47] There would be negative flows basically. That's what it shows. So yeah, technology has 10.3 billion. This is just uh year to date May 2024 so 10.3 billion in net inflows and 3.2 for industrials And then the rest is literally flat or negative inflows which is kind of crazy

[00:21:06] What's your general feeling on the canadian consumer these days? Have you noticed any any data points any anecdotal stuff on the canadian consumer these days? I know that i've seen some graphs around in the us that The household savings left over

[00:21:25] Money from pandemic has basically gone down to zero and you know Consumers have two things available to them right cash Savings or liquid assets what i'll call and credit right and so I'm curious if you have any thoughts on that

[00:21:43] Data point for the for the canadian consumer today Well, most of my data points would be anecdotal but also company earnings So companies that are definitely more based in canna and thinking canadian taller dollar rama

[00:21:56] Can't even talk about uh law blahs cost go some some companies that will have more operations in canada And for the most part it's pretty consistent is consumers are shifting from Non-essential to essential spending so they're tightening up the budget

[00:22:11] They're spending on things that they must buy that they need to buy Unfortunately in terms of aggregate data We just don't have as much in canna compared to the us like you have the new york fed for example

[00:22:22] They come out every quarter with the consumer indebtedness household indebtedness Which shows a very clear picture of the credit card debt and the progression So the us consumer is definitely You know purchasing a lot on credit i suspect that it's similar to canada as well

[00:22:39] Just because people are shifting over to essentials Buying out pay-laters another option the problem is there the data whether it's canada us with that It's very hard to get some accurate data and some aggregate data But people are definitely going towards buying out pay later

[00:22:54] But i'm seeing it with restaurants Around me and odd why i don't know if it's the same in toronto and i've seen some reports as well that Restaurant traffic is down and i've noticed that it's typically the either the higher end Restaurants that have a really good reputation

[00:23:11] The ones that offer really good value or the one that are maybe a little higher price But offer something really special but it's still reasonably priced But if you don't offer anything special and you're not value

[00:23:25] I've seen those at least from what i've seen seem to be struggling Canadian tire has negative year-over-year top line sales growth four out of the last five quarters I just pulled up And the One that was not negative year over year

[00:23:42] Was flat at 0.5 percent year over year so essentially zero so That's that's the data points we have to work off of but Yeah, it's it's There are more that tell a fairly bearish story. Yeah, and i mean people are just

[00:24:01] People are pulling back a little bit so i mean it's understandable But yeah, that's kind of my general sense here and then just to finish on the tf obviously in the us most of the

[00:24:12] Flows in terms of assets under management are definitely the big etf. So you're talking about here the Vio vanguard s and p 500 ivv i shares s and p 500 The number three is actually interesting here today. It is the i shares bitcoin trust

[00:24:30] Which is not surprising to me to some extent, but for it to be That high that is quite surprising You have qqq and then vanguard total stock market. So essentially the bitcoin etfs is the outlier in the top five here Yeah Yeah, like v o o vti

[00:24:49] qqq those are staples. I those are at the top of this list Regardless basically yeah well one two and five are essentially the same right the total market is almost the same as s and p 500 And then qqq is a bit more tech

[00:25:02] But then if you look at the the total outflows, it's interesting that sp y saw the most outflow So I don't know if that's a fee thing people are rotating into the lower fee one. Yeah, that could be it and then

[00:25:16] Obviously small caps have been battered. So you have the i w m i shares russell 2000 down nine billion in flows overall this year and then you have I share mse i us a min vol factor. So i'm not too familiar with that us mv

[00:25:34] minus four billion tfl o i share treasury floating rate bond So minus 3.4 billion and then jp morgan allarian index. I believe this one must have been like wound down because it's 100 down in asset under management So I would suspect that they just closed the fund. Yeah

[00:25:55] small cap investors continue to You know bang the drum on how big of a disparity there is in valuation spreads between large cap and small cap names And small caps continue to you know, that gap just continues to increase over time

[00:26:10] And it's been years and years and years that gap continues to widen and small cap investors continue to bang the drum And I've been pretty vocal about this in the past. I'm all for looking at small cap names

[00:26:22] I think that that's what you know a good portion of opportunity is For self-directed investors who are not constrained by capital liquidity requirements Or you know, they they've been told arbitrarily that they have to buy things that are above this in market cap

[00:26:38] Because these things in exist for professional managers 100 At the same time you have these bigger companies Continuing to just grow and and and grow at accelerated rates. We've seen all three major cloud providers of azure google cloud

[00:26:59] Platform and amazon web services actually grow at an accelerated pace from their previous three quarters in the most recent one And so it just becomes really really difficult to sell a story When you have these companies that are just accumulating

[00:27:15] More and more wealth with more and more data advantages in the market saying hey look The next 10 years the previous 10 years were dominated by big tech and the market saying hey It looks to me Like the next 10 years will be dominated by those same players

[00:27:31] That's how i'm reading the market right now in in terms of price action and where funds are moving Yeah, and there's also like you kind of a touch on it

[00:27:40] But the fear of getting fired right from those fund managers because you can't really get fired for owning apple despite You know sales flatlining or declining Despite them launching which I think was a really underwhelming product with their a

[00:27:55] Apple intelligent which they're just using open ai to you know And I I ran it on this a little bit with dan too But it just to me it just spaffles my mind that the market thought it was amazing because they think people will get new iPhones

[00:28:10] Just because of that. I mean if you're struggling to You know make ends meet you're gonna make your iPhone continue like you're not gonna switch your iPhone to get this new ai

[00:28:21] Intelligence on your phone. You're just gonna keep it as is maybe there's gonna be some people that might switch But I know i'm not switching. I mean I have you know, I have an open ai subscription

[00:28:33] I'll use it on my laptop like I don't need it on my phone until you know a couple years down the line Where it's just too slow to to make anything work on it the real upgrade cycle for iPhones is battery life

[00:28:45] Let's not get ourselves. Yeah, that's the real upgrade cycle. They know that I know that everyone knows that It's battery life Upgrade cycle. That's what they've built. They've built phones that are too good And they've built fantastic product, you know They're like guys they're gonna love ai

[00:29:03] It's like what people actually love is when you get a two-factor authentication text and auto fills Like that's a feature. I actually really like exactly no I just it's just a bit of a headscratcher, but I guess you can get fired for owning apple right

[00:29:18] So that's kind of it's like the new IBM, but don't get me wrong They generate tons of cash flow, but it's still there are serious questions about where the growth is going to come from for apple Let's talk about how to deal with questionable management teams

[00:29:34] So I thought this was a timely topic because it's something I'm dealing with And uh, we have a little bit of podcast therapy as I work through this With myself here and Simone here on the line as well

[00:29:46] And hopefully you guys can learn from that. So I've been a shareholder of auto desk Ticker ad sk for quite some time now Simone I mean as long as you've known me. I've been a shareholder of this thing

[00:30:00] I think at this point I've talked about it time and time again You've had it for it's one of the it's one of the oldest and most successful software companies Of all time, and I don't just mean that lightly. I mean Of all time

[00:30:15] They are a huge player and dominate the category of architecture engineering consultant and sorry architecture engineering and construction a.k.a ae c With their immense category leading software products most notably flagship products like

[00:30:32] Auto cad and revit which have been category leaders now for for many decades from the late 80s with auto cad and the early 2000s with revit They have been in the news for all the wrong reasons as of late including

[00:30:48] questionable accounting of cash flows that there's a lawsuit about the sec Honestly, silly stock-based compensation Sub subsequently not filing their 10k their latest 10k with the sec on time These are just not things you want. Andrew agnus has been the ceo now. I think since 2017

[00:31:09] Quote go for a business that any idiot can run because sooner or later an idiot will probably run it and quote Peter lynch in his book one up on wall street a very very similar quote from warren buffett in 2008 reads

[00:31:25] I try to invest in businesses that are so wonderful that an idiot can run them because sooner or later one will I essentially identical quotes from two very famous investors and I believe the sentiment makes a lot of sense here

[00:31:41] Andrew agnus the ceo. I really liked him when he joined seems smart seems like a good leader well spoken I liked him on the conference calls, especially when he came out with very clear

[00:31:51] Goals for their transgusting around software as a service from license based to the modern tech stack And you know how they can produce billions of cash flow over the next few years They didn't really hit any of those goals. They were close

[00:32:06] I mean, it's not like they felt flat on their face, but they were underwhelming Of course, you and I like to see not only a track record of meeting expectations but surpassing expectations I think they've done the the transition to sass

[00:32:22] Well and bundled some of the products most notably with fusion 360 for the manufacturing sector They've done that but the management team decisions have been certainly very questionable And as a result the stock has traded flat since 2020

[00:32:38] Largely trading sideways a lot of multiple compression. I got a bit frothy, but Look the market at some point Simone says I get it You're running this business But you have to value shareholders in some way and the way that they have been

[00:32:53] Valuing shareholders. It just doesn't seem to be there Especially with how they're You know treating these filings at the sec but also with stock based compensation So During that time Simone revenues have grown nearly 15 per year Total subscriptions have gone from 4.87 million

[00:33:14] To seven and a half million during that time in terms of total subscriptions Most notably recently starboard value, which is a 50 billion dollar activist fund has now invested half a billion dollars into autodesk Their statements outlining a path to being more shareholder friendly

[00:33:33] Because let's be honest this company has not been shareholder friendly Here here this reads It is impossible to believe that another company would immediately hire miss clifford who was the former cfo To be now its chief strategy officer after she was fired from being the cfo

[00:33:54] How is it possible that autodesk needed to create this new position of chief strategy officer And needed to appoint miss clifford into that position now the cfo was removed from the from From the job because

[00:34:11] They couldn't do their job right, you know questionable accounting not getting stuff done not doing their filings on time Not acceptable for a 40 billion dollar public company Is that fair to is that fair to say not acceptable right

[00:34:26] No for them to then throw it here. I'm gonna make up some Chief strategy officer and throw that like what do you think about that when you see that? Yeah, I mean it's just trying to show like they're doing something I would say

[00:34:39] I think that's just for for a show more than anything and what i'm showing right now too is basically the share base compensation I I don't follow this company much as you were talking I pulled it up like it's grown it's grown more

[00:34:54] Than revenues in terms of annual growth rate. It's grown at 16.88 percent since 2017 versus revenues that have grown at 15.14 So that is right there That's pretty alarming to me and I was looking a bit earlier at also their total shares outstanding

[00:35:12] So they're spending a lot of money buying that back, which you know, it's not great for shareholders because you're on the one hand You know giving sbc, but then on the other hand

[00:35:23] Taking cash flows to buy that back. So it's just um, I know the tech industry does it quite a bit But this seems to be um excessive definitely. Yeah It is excessive I have here a quote tweet from Ryan henderson actually works at finchat

[00:35:42] He goes he made a little meme he goes autodesk shareholders. We want lower sbc Autodesk management team. How about a new chief trust officer? They appointed sabashin goodwin as chief trust officer. I just don't know what that I don't know what that is either is chief strategy officer

[00:36:03] Chief trust officer it's like guys We have made it very clear how to create value in this business and Shareholders are not getting anything what they want and Look, I believe that good companies are run by managing all stakeholders effectively That's customers employees

[00:36:28] And shareholders if you're a public company you have to manage all three if you only want to manage two Don't go public Right like that's that's the whole thing right and and so i'll return to my initial question here is

[00:36:44] What am I going to do and what can you do? What is a framework for having a company on the watch list or position you own where you just scratch your head around management decisions Where you think to yourself

[00:36:59] That's not what I would do and I have a 10,000 foot view out of the woods of this company Like that's not the kind of feeling that I want and so for me you want to invest in brilliant management teams, but the context

[00:37:12] Really really matters and I've broken this down into three key factors for my framework here So here's what they are so number one in the framework What stage is the company at is it mature? Or is it a brand new company in this?

[00:37:28] Example autodesk is a mature company with huge brand name massive market share It's not a startup where it relies on key founding team to execute the future And I caveat all my three frameworks with of course management matters and of course you want perfect management teams but

[00:37:47] You i'm trying to balance that with is it completely necessary for my investment thesis to work And so what stage is the company at is it a brand new startup where? You know the execution from the top management team has to be crisp or is it coca-cola

[00:38:03] Where you know it kind of grows at global gdp regardless no matter what So those are those are where i'm thinking when it comes to what stage any thoughts there

[00:38:13] No, no, I think that's uh, that's a good overview. Yeah, and don't have too much out there number two Is the business's main business? capital allocation And what I mean by that is are they berkshire hathaway or are they pepsi berkshire hathaway's business

[00:38:32] Is the business of capital allocation? their business is in the business of moving money from the mothership Into acquisitions or allocating to certain things that they own inside of this massive conglomerate

[00:38:46] Versus pepsi, which is now a conglomerate. Maybe maybe not a bad example, but their business may be Not entirely about the business of capital allocation What this means is is it a berkshire hathaway? Is it a hyco or in canada?

[00:39:01] Is it a constellation software a kush tar to terra vest where their business relies on management being really sharp their whole business is built on the form of they need to acquire and astutely Allocate the capital for shareholders to win

[00:39:21] For autodesk, it's kind of split their business is not mna But I think that's one of the complaints from starboard values. They should be looking to do more mna So for me, this one's a bit neutral on

[00:39:33] In in point number two for autodesk. I don't have a hard opinion one way or another Yeah, yeah, I mean, I think I'm I don't know like I said I know the company more through you than anything but

[00:39:44] I would think that's a fair assessment. Maybe they could be allocating capital a little better here I think starboard value also has a pretty good track record overall not all wins

[00:39:54] But I think they probably have a point and I'm sure they've dug into this quite a bit too Yeah, number three which leads to what you just said. Is there a catalyst for change? In this example, yes

[00:40:09] Shareholders are drawing the line at the bad accounting the big act must firms getting evolved lawsuits poor performance on the stock There is a catalyst right now

[00:40:18] In fact, the stock is up quite a bit this week on the news that jeff smith and starboard value is getting involved Given their track record with these types of situations Unlike okay. Hey look You're a public company you have to run With three legged stool in mind

[00:40:38] Shareholders need to get what they want customers need to get what they want and employees need to get what they want That's an enduring beautiful business. We're all three of those win And if you're focused on just one or just two or not all three in mind

[00:40:53] Not everyone wins. We're looking for win-win-win situations here and so In this example, there most certainly is a catalyst for change And so I it's a difficult situation to navigate in

[00:41:07] In summary my framework is three points here. What stage is the company at so is is management relying on like Are they key and are they the founding team that's going to get them from zero to one? And number two

[00:41:22] Is the business in the business of capital allocation think of like mark lennard and consolation software And then three is there a catalyst for change up top and in this case, I think absolutely yes

[00:41:33] So generally how do you approach this? Do you have any examples in your portfolio where you've had to make some hard decisions around management? Yeah, I mean, I guess I'm trying to think here Probably the most recent one. I think there's been other ones. I just can't remember

[00:41:50] You know when you have a a young kid sometimes your memory because you lose sleep a little bit But you get a dad brain. Yeah dad brain. I mean for me. It's not necessarily

[00:41:59] I guess it's kind of mixed feeling but I sold as you know allied property read recently And there was a change in management last year at some point not that I blame management all that

[00:42:11] Too much, but it was just the messaging from management that could have been clearer Instead of being a bit more evasive or almost kind of saying things will get better in a certain time frame and then kind of changing that time frame

[00:42:25] And like I said with Dan, I mean It's hard to blame management on one hand But I think I would have liked more transparency in terms of you know, we don't know where this is going We're hoping this will get better by then

[00:42:38] But we just don't know which wasn't really the case and I've listened to all the calls But we talked about that too with for example, you know intel

[00:42:46] I mean we railed on intel quite a bit but you had like management for saying on a conference call that the dividend would be like Stable would not change and then I think within a month after that

[00:42:58] They cut the dividend things like that is where I would if that happened to a company I own I would sell the position because I just can't trust management. Yeah Yeah, I think that makes complete sense. I sold

[00:43:13] I had a really I don't know if you remember this I had a really tough time with understanding the debt Decisions the debt financing decisions at Algonquin power. Oh, yeah, I remember that. Yeah, and I own the this the canadian utility

[00:43:31] I own shares at like 20 bucks 21 bucks and sold because they were issuing debt I used to work in the utility industry They were financing the company at rates that i'm like

[00:43:44] Did you guys even shop this like and also there's this hack called green bonds like I I didn't under I didn't like how they were financing the debt structure. And so I sold the company I sold the stock at like 19 20 bucks

[00:43:58] They're like next quarter the stock went to nine dollars or less than 10 dollars Dodged a bullet there. That's where it was like I do not agree with what you guys are doing I have personal experience that I think you're doing something wrong

[00:44:12] and that's like a kind of lesson around Companies you know really really well or industries that you know really really well is a good place to live Because you can have a differentiated opinion better than the market can I think a lot of investors and self-directed investors

[00:44:29] have the idea of There's no way that I can know more than professionals And it's just frankly not true a lot of professionals are very generalist And you might have a lot of knowledge on specific sectors and industries far better than many professionals. And so

[00:44:48] my point to people listening is To have a lot of confidence in spaces that they understand really really well and not have imposter syndrome Because imposter syndrome can be rampant for investors of all kinds And it's best to to kind of fight against that instinct

[00:45:04] Yeah, and I think to me at the end of the day that one of the best tools is just listening to calls Not the most not just the most recent calls but going back in the past and as management actually

[00:45:15] Have they actually done what they said they would do? And I think that's the the biggest red flag obviously there are certain events Like if you had management that was there pre-covid and then the pandemic hit

[00:45:26] And it's kind of a black swan event. I think you can give them a little bit of a pass there depending on what the situation is But for the most part you're able to go back and listen to what they say and

[00:45:37] Whether they're full of it or they actually execute on what they're saying and to me that's a big big red mark If they are constantly Promising something

[00:45:49] And falling short of it. It's not it's not really a company that I would want to own and if there is a company I own there is a change in management

[00:45:56] I will definitely follow it closely to make sure that this doesn't start happening with this new management team Quick plug for free you can go on to finchat go by company go in the investor relations tab and you can listen to their earnings call

[00:46:10] with the transcript side by side On the same platform so you can go on there and actually just listen to the call You don't have to go dig through investor relations on their website Go find the mp3 refile none of that stuff

[00:46:22] You can go right on there view everything in one place It'll come with the the press release the transcript and slide decks that come Associated with the earnings call so a little hack on that for people want to save time Listen to it 1.25 or 1.5 x to speed

[00:46:39] And then if you have a section you want to listen a bit more closely You just kind of go it back to one x to speed That's a little trick that I do when I listen to conference call because you can still catch

[00:46:49] Everything they're saying you might just have to pause and rewind if there's a certain section Or you look at the transcript at the same time But um little trick if you want to save some time listening to to earnings calls. Yeah, I'm a 1.25

[00:47:03] Kind of guy. Yeah, that's a sweet spot. Yeah, unless like there's certain sections sometimes where I'm like I really You know the actual financial results for the most part

[00:47:13] I listen to what the typically the co right will start and then the co will chime in and it's usually like I've already seen what they're saying on the actual learnings. I don't need them to repeat what I just read myself

[00:47:25] So usually I'll kind of either speed that one up or skip straight to the question period Yeah, good call. I think yeah, I think that will be it because I'm running Uh, I'll have to go pick up my little lady soon at the daycare

[00:47:38] And so I'll keep my segment that I had prepared for next week. Uh I was uh, it was still a fun episode. Yeah Daycare just going absolutely wild in this heat wave right now. Is that uh

[00:47:50] You get there. It's just pandemonium or what? Uh, yeah, they're uh, yeah, they're inside and they see so everything's good I'll pick her up with the stroller. I've got a little fan. I've got a little spray bottle with some ice in it

[00:48:03] I have sunscreen and then we'll go straight to the splash pad to uh stay cool. Yeah You gonna get in the splash pad? Uh whether I like it or not I think I will have to

[00:48:15] Remember the do they still have those things at the splash pad where it fills up with water and then Dumps like a huge amount of cold water on you some do but there's most of them

[00:48:25] There's like several things right but there's like one main button and then it kind of alternates So the toddler is usually they're kind of discovering that so they'll put like

[00:48:33] Their face right next to the one that's not doing anything and then all of a sudden it just like starts splashing in their face. It's uh It's pretty funny the shock that happens. Did splash pads at like a core memory as a kid?

[00:48:47] That was good times. Oh, yeah, I mean, you know, you're uh, you know, you're gonna have a good day Yeah, yeah July heat splash pad. Oh, that's core memory. I think it's 44. I think with humidity here. It's pretty crazy

[00:49:00] Okay, well you'll be yeah, you'll be dad all the dads will be in the splash pad as well then Thanks for listening to the pod folks. We really appreciate you you can support the show on just by listening

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[00:49:30] Helps us grow the show as well as our patreon at join Tci.com Sierra monthly portfolio updates are graphs that we're sharing you can see the graphs of abracrombie and uh, Celsius The most innovative tech companies of all time

[00:49:48] Outpacing good old Nvidia here. So, uh, you know, it's it's not just Nvidia that's going up There's other stuff going up too. We'll see in a few days. Take care. Bye. Bye The canadian investor podcast should not be construed as investment or financial advice

[00:50:04] The host and guest featured may own securities or assets discussed on this podcast Always do your own due diligence or consult with a financial professional before making any financial or investment decisions