Why Buffett’s Cash Pile Is Growing and Bitcoin’s Post-Election Surge

[00:00:01] This is The Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Braden Dennis and Simon Belanger

[00:00:14] The Canadian Investor Podcast. Welcome to the show. My name is Braden Dennis, as always joined by the rejuvenated Mr. Simon Belanger.

[00:00:26] We're back, baby. Here we are. The boys are back. And you're back with a new back.

[00:00:32] Yeah.

[00:00:33] Tell us, you flew across the country, next level tech. Look at you. You're a trailblazer in the world of medicine here.

[00:00:41] Yeah, I mean, or a guinea pig.

[00:00:43] Or a guinea pig.

[00:00:46] If you've been listening to the podcast for a while, you know I've been dealing with chronic back issues for like almost 20 years now,

[00:00:53] since I was a late teenager, early 20s. And unfortunately, as you get older, it doesn't get better.

[00:00:59] And I have a friend of mine who has a clinic called Beam Radiology that specializes in pain treatments.

[00:01:05] So I got a treatment done. I had to fly to Calgary. It's called PRP, platelol-rich plasma, where they inject that into your disc.

[00:01:13] And it's shown some very promising results to actually help your disc and the collagen around it kind of heal over time.

[00:01:22] So, so far, I mean, I'm doing better than before I got the shot.

[00:01:25] And it's supposed to keep improving for two to three months. And it's, in most cases, it's one and done.

[00:01:31] So...

[00:01:31] Oh, it's a one and done.

[00:01:32] Yeah, one and done.

[00:01:33] Those things I feel like you got to do it every year or whatever.

[00:01:36] Yeah, like cortisone shots. Those are the most typical treatments.

[00:01:39] So, unfortunately, with our medical system, right, sometimes you have to, if you're dealing with chronic pain, you have to be your own best advocate.

[00:01:47] And, you know, I had to do this, especially with expecting a second little one.

[00:01:51] I'll be picking up a toddler more often as we get our next little one.

[00:01:55] So, if you're someone that's been dealing with chronic pain, they have some treatments that are covered by provincial programs, some that aren't.

[00:02:03] But again, I know the feeling of dealing with chronic pain for long periods of time.

[00:02:06] So, I'll put the link in the show note.

[00:02:09] It's a phenomenal clinic, like nothing like I've ever seen before.

[00:02:12] And he's your buddy from growing up too, so...

[00:02:14] Yeah, yeah, yeah. Very, one of the smartest, hardest working guy I've ever known, yourself included.

[00:02:20] So, and you're pretty high up there too.

[00:02:23] Hey, no, he's doing way cooler stuff than me. I can guarantee that.

[00:02:28] Dude, we got a good show here for the listeners.

[00:02:32] It's the first time you and I have got on the mic since the US election.

[00:02:37] And, you know, we're back.

[00:02:40] It's like feeling like 2021 vibes a little bit.

[00:02:43] It irks me a little bit with this much excitement and kind of some hot air in the speculative assets.

[00:02:49] I saw Dogecoin is worth 53 billion in market cap as of recording today, which would make it like a higher market cap than Square or AKA Block now.

[00:03:00] It's like the eight... That would be like the 79th largest technology company on earth by market cap.

[00:03:05] And so things are going a little crazy.

[00:03:08] And I looked at your show notes and you wanted to talk about Bitcoin today.

[00:03:12] I was like, move that up the dock because I want to know what you're thinking.

[00:03:17] And I never thought I'd say that.

[00:03:20] And then we're going to talk a little bit about just top of mind.

[00:03:25] I'm going to ask the question and we're going to discuss with data rather than just vibes.

[00:03:30] Are stocks overvalued today?

[00:03:33] And so the case for and the case against, are stocks overvalued?

[00:03:38] But I... Dude, I saw a hilarious excerpt on is it really feasible to successfully trade election results?

[00:03:48] You know, Polymarket and Calci are the top.

[00:03:52] I think all the brokers are putting it out there now.

[00:03:55] I saw Robinhood as this where you can like bet on the election.

[00:03:58] I think up until just a day before, Trump was only a very small favorite.

[00:04:03] But as you saw the results come in, he kept creeping up and up and up.

[00:04:11] Before it became clear like he was going to win, it was like 96%, 97%.

[00:04:14] And I found an excerpt from Going Infinite, that book about Sam Bankman Freed, good old SBF.

[00:04:22] During his time at Jane Street, he built a 2016 US presidential election results prediction bot, basically,

[00:04:35] before any mainstream media outlets would know.

[00:04:38] And so him and a bunch of analysts were able to obtain state level results within minutes before CNN.

[00:04:47] Despite learning of a pending Trump victory before anyone else, Jane Street still managed to lose money on their trade because they bet against US markets.

[00:04:57] Through their short position seemed like the right choice.

[00:05:01] As the night went on and the market digested Trump's victory, a US rally ensued.

[00:05:06] So the point here is, it's really easy with hindsight to go, oh, of course he was going to win or of course markets were going to react like this.

[00:05:16] But even something as sophisticated as Jane Street looking to trade against us before they have, you know, before even mainstream media has the information.

[00:05:25] It's a really hard game.

[00:05:28] Like this act, betting on short term markets is really difficult game.

[00:05:32] Yeah. And the way that Polymarket works is pretty amazing, right?

[00:05:36] Like people think they're betting against a bookie, but it's like on the blockchain.

[00:05:39] So they're actually betting against people that are taking the other side as well.

[00:05:43] And you could have made money throughout, believe it or not, by switching your bets right before the elections, like several weeks and months.

[00:05:52] So at some point, I think Trump was like 65% a few weeks before.

[00:05:56] And I saw someone saying like, oh, that might be like a bit too much at this point.

[00:06:00] You could probably make money betting on Harris to return closer to the odds, maybe 55-45 and then you can switch your bet back.

[00:06:10] So there's...

[00:06:10] Yeah, you could have hedged it as the line moved.

[00:06:12] Yeah, exactly.

[00:06:13] So it's pretty fascinating to look at it.

[00:06:16] But I was like, I think Bloomberg in the US had like a really...

[00:06:20] They had not only Polymarket and then a few other betting odds and you could just follow.

[00:06:25] And like you said, like they called it like it was, I think, 90 plus percent, pretty much every single market several hours before the first like mainstream media outlet called it.

[00:06:34] So it was just interesting to be seen.

[00:06:37] And I think honestly, like it's probably changed the way that we'll be looking at elections going forward.

[00:06:43] And I wouldn't be surprised that we'll be having something like that when the Canadian elections comes up.

[00:06:49] I'm sure there's going to be some betting odds for that too.

[00:06:51] Yeah.

[00:06:51] The biggest loser was the pollsters saying that it's going to be a 50-50 coin flip, right?

[00:06:59] Like, they just... they kind of lost the... they're just no longer relevant.

[00:07:04] I think that this election just puts that to bed.

[00:07:06] Quote here, what would have been a $300 million profit for Jane Street turned into a $300 million loss?

[00:07:14] It went from the single most profitable trade to the worst in Jane Street history.

[00:07:19] My goodness.

[00:07:21] It's a tough game.

[00:07:21] All right, let's talk about Bitcoin.

[00:07:23] Like I said, I didn't think I would ever give you the knock and say, pull this to the top of the show.

[00:07:28] But dude, this is... people want to know.

[00:07:30] I want to know.

[00:07:31] What do you think in here?

[00:07:32] Yeah.

[00:07:33] I mean, I think, well, first of all, obviously, unless you've been living under a rock, Bitcoin has gone absolutely like, I mean, almost parabolic since the election.

[00:07:42] I thought it might... my personal view, and I'll be very honest, I was completely wrong.

[00:07:47] And, you know, I've owned Bitcoin for a long time is I thought it might be a seldom used kind of events.

[00:07:52] That's where I like... I texted a buddy of mine.

[00:07:55] And I was like, yeah, it's probably going to be seldom used because the, you know, it had kind of slowly crept up around 70,000 US around like just before the elections.

[00:08:03] I'm like, oh, okay, maybe the market's already pricing it in.

[00:08:07] And, you know, Polymarket was already showing kind of Trump a little bit in front.

[00:08:11] And I was planning to do one on a research piece from Sam Callahan and Lynn Alden.

[00:08:17] If we have time today, if not, I'll keep it for another day.

[00:08:20] And whether you're, you know, you enjoy, you know, you're really interested in Bitcoin or not, that piece, I'm just going to let people know it's about more than just Bitcoin.

[00:08:28] It's about global liquidity.

[00:08:30] So, yes, there's a, you know, more of a focus on Bitcoin, but it looks at other assets as well, which is really fascinating.

[00:08:37] They did some great work to show the kind of correlation between all different type of assets and global liquidity.

[00:08:44] And I thought they did a really good job.

[00:08:46] So I'll summarize that if we get to it today.

[00:08:48] That's fine.

[00:08:49] If not, we'll get to it following episode.

[00:08:52] My thoughts here is I tweeted it the day of the election.

[00:08:55] I said, word for word, the US election is just noise when it comes to Bitcoin.

[00:09:00] Record deficits will continue no matter who wins the election.

[00:09:04] And that's just reality.

[00:09:05] So I think in the long run, I just don't think it matters all that much.

[00:09:10] It kind of goes back to the liquidity a little bit because the deficits in the end have to be monetized by the central banks who then have to essentially take the money printer out like that's just way to summarize it without getting into too much of the plumbing here.

[00:09:26] But clearly, short term, it's been a big attack catalyst for Bitcoin.

[00:10:02] The market is a big attack on Bitcoin.

[00:10:02] We talked about BlackRock before.

[00:10:05] BlackRock, say you am, will kind of shift with the market.

[00:10:08] So yes, it's a combination of inflows.

[00:10:10] But also the market value of the assets.

[00:10:12] So yes, the price of Bitcoin as definitely appreciated there.

[00:10:15] and one interesting tweet here that i'll share with it's from eric baltunas he's a senior

[00:10:23] bloomberg etf analyst a very reputable in the sector so he doesn't cover just bitcoin just to

[00:10:30] be clear so this was a tweet for him about a week ago i said that i bid the blackrock i shares

[00:10:36] spot bitcoin etf at its biggest trading volume of 4.1 billion a week ago and for context that's

[00:10:45] more volume than stocks like berkshire netflix or visa saw on that same day and that's just that

[00:10:51] specific etf that's just yeah it's not all of the etfs yeah it's just it's just that ticker just i

[00:10:58] bit yeah oh my god yeah so and i looked this morning i think yesterday at a jump to 4.53 billion for i

[00:11:07] bit alone so within the span of a week that actually eclipsed you know that volume and it's massive and

[00:11:14] he's talking about big companies that are very liquid here he's not talking about like tiny

[00:11:19] companies so it's just interesting to see especially with the etf it's opening the door to a lot more

[00:11:26] people i think it took some time but you know it's really the 90 billion in terms of asset under

[00:11:33] management is beyond the wildest predictions like most people were saying like 10 20 billion would be

[00:11:41] like quite good when you exclude the grayscale etf because they already had some assets in there

[00:11:48] but to be at that amount is just pretty phenomenal now if we get back to trump and the election obviously

[00:11:55] it's hard to not talk about trump being elected because it has such i think has had a big impact on

[00:12:01] the price of bitcoin he spoke at the bitcoin conference earlier this summer i don't know were you aware of

[00:12:06] that i i watched it yeah yeah yeah i was yeah so he was the first political well prominent uh candidate

[00:12:14] to speak at the conference or at least someone that actually had a chance to become president

[00:12:19] that matters because first of all he said he would fire gary gansler who's the chair of the sec

[00:12:25] who has not been it's not just a crypto space like i can say like he's not been a very popular sec

[00:12:32] commissioner he's been incredibly hostile towards the crypto space um i wouldn't say necessarily

[00:12:38] against bitcoin specifically but the broader crypto space uh definitely and the biggest issue

[00:12:44] here is that the industry has been asking for regulation like believe it or not and as much as

[00:12:49] some people are still very reluctant with bitcoin and crypto the industry was actually asking for

[00:12:56] regulation that's because traditional financial regulation is very hard to apply to a lot of crypto

[00:13:02] companies an easy example is you know the blockchain in most cases all these crypto currencies are

[00:13:09] decentralized so you kind of remove the middleman right traditionally there's always a central player

[00:13:14] so when you do a transaction it always grows through something central and when you remove that you know

[00:13:19] it's difficult to apply the existing regulation just to kind of try to simplify it as much as i can

[00:13:26] some you know may have thought that you know it was reasonable the way the sec was doing it but you had

[00:13:32] like company after company including coinbase that said they are trying to register with the sec

[00:13:39] and they've been in talks for months and spent millions of dollars and it always come back to the

[00:13:46] same issues that they can't fulfill because it just doesn't apply to them so what the sec had been

[00:13:51] doing is basically bringing them to court for failure to register and what what was happening

[00:13:56] is a lot of these companies that just didn't have a lot of financial resources would just settle with

[00:14:02] the sec and of course it was discouraging investment in the space there has been some companies like

[00:14:08] coinbase that have pushed back and when there has been pushback typically the sec has not done quite well

[00:14:14] this was one of the reason that the sec had to approve the spot bitcoin etfs it's because uh they

[00:14:21] were essentially sued by providers because they were allowing futures trading but not the spot bitcoin

[00:14:29] etfs and essentially it went to court and the court said your arguments don't hold up if you're approving

[00:14:34] these futures etf and not spot and then the sec essentially was forced to approve them now to get back around

[00:14:43] bitcoin obviously the other thing is trump has also surrounding himself his campaign with people that

[00:14:49] are clearly supporters of bitcoin two that come to mind i know you're you're familiar with them there's

[00:14:55] vivek rav swami and his vp elect jd vance so jd vance for example uh he's shown his latest disclosure

[00:15:02] to have between 250 000 and half a million in bitcoin so clearly and he's um he's a venture capitalist

[00:15:09] to jd vance in the past so he's definitely someone that is you know i think open i think we're it's

[00:15:16] safe to say and i've listened to him talk quite a bit and i think he's quite open to to technology and

[00:15:21] investments and making progress of course you know people will say you know trump you know he you know

[00:15:30] like all politician you know he lies and obviously you know show me a politician i'll show you a liar that's

[00:15:36] always my lines that's kind of my view and i i know it's kind of a bit cynical but that's how i

[00:15:42] view things but i think at the very least from that standpoint i think we can all agree that we'll have

[00:15:47] a less hostile administration in the u.s where the biden administration was very very hostile towards

[00:15:55] crypto not on like not quite sure why to be honest um you know they were always coming back to its use for

[00:16:02] by criminals and stuff like that but when you actually look at the data you know what's really

[00:16:07] used by criminals is the u.s dollar so it's uh yeah

[00:16:14] anyways i have a few more things but i know you want to chime in here so i'll let you do that before i continue

[00:16:19] i mean statistically it's been forced on politicians to become a political point

[00:16:25] right security.org suggests that for there could be up to 93 million people in the u.s that have

[00:16:32] exposure to cryptocurrency the u.s federal reserve in 2023 report indicated that only seven percent

[00:16:39] other sources have so basically we've got estimates from 10 million to nearly 100 million from different

[00:16:47] sources yeah and it's impossible to know the truth is probably somewhere in the middle

[00:16:53] that's a significant amount of people and if you've met the bitcoin crowd which you have and yeah you

[00:17:00] know i'm looking i'm looking at one of them yeah and you know i've owned it for a long time now too

[00:17:04] is this is a some people are single policy voters around this kind of stuff yeah and so it's been

[00:17:14] forced upon them to to at least say they're going to be friendly to it you know that's that's that's

[00:17:22] the real difference is saying they're friendly to it versus not is remains to be seen but i think that

[00:17:28] the u.s has inherent motivation to continue to export the power of the u.s dollar and so anything

[00:17:40] that disrupts that is counter counterintuitive to their main mission of remaining the de facto empire

[00:17:47] and the de facto currency used around the world for global commerce and so i i think that they look

[00:17:52] at it as a risk and even if the person that gets elected says they're going to be friendly to it

[00:18:00] man there's a there's a lot of three-letter agency soups out there that have different ideas so that's

[00:18:07] that's my comment on this yeah yeah i mean and that's definitely you know a risk that uh you people

[00:18:13] should factor in if they do want to start a bitcoin position or if they already own bitcoin i mean the

[00:18:19] counterfact to that is there's also the fact that i think it will become more and more attractive for

[00:18:25] foreign foreign reserves so countries that are looking to diversify away from the u.s dollar you

[00:18:32] know i'm not saying they're going to put everything like uh or like a lot of it into bitcoin like el

[00:18:37] salvador for example but maybe they start adding a little bit to supplement their goal holdings because

[00:18:43] foreign central banks have actually been adding to that because and i've said it time and time again

[00:18:48] i've said it more than once on the podcast whatever is your view you know on the conflict in you

[00:18:54] between ukraine and russia and what should be done going forward one of the dumbest things that the u.s

[00:19:00] government could have done was to freeze russian assets u.s dollar russian asset just because

[00:19:07] it kind of warned countries that like okay you may be friendly with the u.s now but

[00:19:13] five ten years the u.s could do the same thing to you if you're not on the same page so i think

[00:19:18] that is something to keep in mind and but at the same time i don't think the dollarization is coming

[00:19:23] anytime soon there's too much the u.s dollar debt around the world and countries and businesses need u.s

[00:19:31] dollars so i think it's something that's probably more decades down the line but the last thing i'll finish

[00:19:36] here is i tweeted something and clearly whenever i tweet about bitcoin there's always uh you know

[00:19:41] some passionate people on both sides of it's a divisive it's a divisive topic it it has it has been

[00:19:47] for a long time yeah and you know i just tweeted i said look i still don't understand who those who

[00:19:53] will not have any exposure to bitcoin uh regardless of the view on the asset it's an asymmetrical bet

[00:20:00] and what that means is asymmetrical bet is just the upside is far greater than the downside

[00:20:05] and the example i said okay say you put 0.5 percent of your assets in it what's the worst

[00:20:11] possible outcome it goes to zero that is the worst outcome can't go negative and the best possible

[00:20:17] outcome it could double triple 10x 100 hex whatever it is right so you know you can mitigate risk

[00:20:25] by allocation and that's why i chose such a small allocation because it you know for the most part

[00:20:31] i mean people have seen even the most conservative allocation i can guarantee you you've seen swings

[00:20:36] up you know more than 0.5 percent in any given year or even of any given month and one person i think

[00:20:43] it's embeds i think just the the anti-bitcoin crowd where they just kind of just focus on the fact that

[00:20:52] they don't like it and they forget everything else and they're not open to it where you know i won't

[00:20:57] say the name at someone that follows me so i'm assuming they probably listen to the podcast i'm

[00:21:01] not quite sure but it's amazing how the negative view will kind of blind them to just things like

[00:21:06] you know simple math and the person responses well keep making bets where investment can only go to

[00:21:13] zero at worse and it's baffling because if you just take out bitcoin out of the equation

[00:21:19] i mean it's just disregarding the math like it's just math like just forget also since when can

[00:21:24] equities not go to zero exactly that's the other thing right and an extreme example everyone has

[00:21:30] own everyone who's been investing for a long time has had an equity face mega drawdowns

[00:21:37] a single position or companies going to zero yeah and and if you've been lucky enough not worse

[00:21:44] right yeah and i think it's an extreme example but say you have 100 of your portfolio in one single

[00:21:52] company and you have 0.5 in bitcoin it's less risky to have 0.5 in bitcoin don't care what company it is

[00:22:00] the reality is if anything happens with that company you have all your eggs in that one basket

[00:22:06] and if anything happens with bitcoin you have a tiny tiny fraction and if you tell me your portfolio can't

[00:22:12] recover from a 0.5 loss which by the way i don't think it's very likely that it goes to zero but i

[00:22:19] try to illustrate that so people understand the you know the volatility and have the right mindset and

[00:22:25] don't panic but to me you know if you can't understand that concept i'll be very blunt like

[00:22:30] you should probably give your money to a professional to manage it because they'll probably do a better job

[00:22:35] if you cannot understand the risk and the weighting and the risk associated with that because you know at

[00:22:42] the end of the day even you know government bonds like governments have been known to default you know

[00:22:48] real returns of government bonds are likely to be in the negative in the next decade or so so sure you

[00:22:53] may see your nominal value there but you'll actually your real rate of return when factoring inflation

[00:22:59] will be lower so that's why i mean at the end of the day i think when it comes to bitcoin i would

[00:23:05] recommend people to you know just do your homework read about it you know try to understand it what

[00:23:13] resonates the most with me may not resonate the most for you there's different reasons why people

[00:23:18] hold bitcoin the reason i hold it is because i think through you know governments will keep debasing

[00:23:24] money because ultimately you know governments can expand the money supply as much as they want it's not

[00:23:30] backed by anything you can say it's backed by the government but the government can turn the faucet on

[00:23:35] as much as they want there's no limit to what they can of course the more they do the more there are

[00:23:40] consequences to doing so i'm not saying there's no consequences backed by contracts with lockheed

[00:23:46] martin pretty much but i mean there's you know there's fiat all around the world right and uh the piece

[00:23:53] that lynn alden did was so great because of that reason because it looks at global m2 so it takes i think

[00:23:59] the m2 of the eight largest economies in the world including the u.s china canada is in there as

[00:24:05] well but that's what resonates the most for me for some other people it might be the fact that

[00:24:11] if you have it you own your you know cold storage you own your you know it's your own keys it's not

[00:24:16] controlled by anyone else i think that the fact that it can't be controlled might be the reason to own

[00:24:21] it especially if you're in a country that might have a lot of financial repression that could be

[00:24:26] a very very strong argument for it but i think i would say forget about the price where it's at

[00:24:33] and learn about it i think if you start buying it just because number go up if there's a significant

[00:24:39] drawdown you'll probably you know sell out at a loss um so i think it's really important to

[00:24:44] understand what it is and have a conviction in it and if you're not quite sure then and you want

[00:24:49] exposure then do a super small percentage that you're comfortable that it goes to zero again i don't

[00:24:55] think it will go to zero but you know with that mindset you wouldn't panic if there's a big drawdown

[00:25:00] look the train is left station with this thing right like i i still think that there's a lot

[00:25:06] of criticism that is valid around the asset and i get all of those things i had the the mindset

[00:25:12] thankfully luckily from hanging out with you and and trying to read a couple books and understand and

[00:25:19] really the bet around okay tiny allocation is my this is my chump insurance this is my tiny

[00:25:26] allocation chump insurance and a tiny allocation not so tiny anymore yeah exactly i was gonna say

[00:25:33] it's not it's a material allocation now yeah right and and i don't sell winners so this is kind of you

[00:25:39] know how portfolios construction happens over time for someone like me but i look at like first money in

[00:25:44] for you 100x on first money in or close to 80x 90x i would say more like in the 20 range but still yeah

[00:25:55] yeah no i mean it's on canadian dollars it was like three grand in 2017

[00:26:02] yeah yeah i guess well i started in uh for the most part in 2018 but i did some very i guess so

[00:26:08] yeah so a year after but like yeah again it's we're talking about significant gains you should

[00:26:14] you should look it up i'd be curious i i think you're probably closer to 50x than 20x but anyways

[00:26:19] i said back then look i don't have any hot takes i'm going to defer this to you

[00:26:24] but i'm not gonna not pay attention anymore is what i was saying in 2019

[00:26:30] i'm not gonna not pay attention anymore because i don't get any value by

[00:26:38] by not paying attention to it there's no i don't it doesn't do anything for me by turning a blind eye

[00:26:43] to it and i think that that's you know there's still lots to be done there's still a lot of

[00:26:48] criticism around it i've mentioned a few things i think the utility still has a lot to prove

[00:26:52] but not paying attention is crazy like it is crazy i think but you know that's that's just our take

[00:27:03] let's just shift gears now to the question are stocks overvalued simon this is maybe

[00:27:12] maybe right yeah but what i wanted to do is because when people are talking about the index

[00:27:18] they forget that they're talking about 20 companies for the most part these days and i wanted

[00:27:26] to compare the top 20 us companies today versus 20 years ago and i also have some data on on the

[00:27:35] tsx and canadian stocks as well that i'm happy to talk about but the tsx today remains largely a

[00:27:42] better place for value generally like stocks are trading at cheaper multiples value wise you just

[00:27:51] have to make sure that you're looking at the right quality matching you know companies with global

[00:27:56] opportunities to match companies with global global opportunities they're not the same and so i think

[00:28:02] you have to adjust your expectations there but the data that's easy for me to gather top 20 20 years ago

[00:28:10] to the top 20 now so i do not disagree that stock markets around the world are trading at rich

[00:28:18] valuations especially in the u.s it would be a wild statement for me to say the market is screamingly

[00:28:25] cheap we're closer to screamingly expensive than screamingly cheap i think that that's without saying

[00:28:32] it's not cheap agreed and it's rich for anyone's blood all of that is fine i hear

[00:28:40] returns are going to be bad from here um because of earnings yields i hear you know elevated p e of

[00:28:50] s&p stocks is elevated historically therefore stocks will do bad and and all of that's fine but it's

[00:28:58] ignoring a lot of data stock markets index indices like the tsx 60 the s&p 500 russell 2000 nasdaq 100

[00:29:07] they track a basket of companies we cannot forget this the nasdaq 100 doesn't just randomly go up and

[00:29:15] down based on you know vibes or you know uh if the sun's gonna come up tomorrow it's a basket of 100

[00:29:24] companies so just like the performance of a portfolio of 10 stocks over the long run performs

[00:29:32] on the basket of those 10 stocks indices are the same right and so it depends on what we're looking

[00:29:38] at but this is this is the same so what are the good indicators of stocks going up or going down

[00:29:44] revenue growth and operating margins morgan stanley's research on return decomposition is

[00:29:50] fantastic from michael mobison and so to summarize my take on the research revenue growth and operating

[00:29:57] margins are things that directly affect are affected by the decisions that the company makes

[00:30:05] directly a decision of the management team skills the business model and the market they're in

[00:30:11] so simon you have up on the screen i'm going to share this this is the top 20 companies in 2005

[00:30:18] okay i'm going to rattle them off in number one largest company in the world was exxon mobil

[00:30:23] number two good old general electric you got microsoft walmart johnson and johnson pfizer bank of

[00:30:31] america aig ibm intel oh god how things have changed berkshire hathaway altria which was merged with

[00:30:40] philip morris at the time procter and gamble jp morgan chevron cisco coca-cola wells fargo

[00:30:46] and verizon this looks a lot like the tsx banks and energy and telcos yeah yeah doesn't it look a lot

[00:30:58] like the tsx banks energy telcos right yeah kind of it just kind of shows that there's been a lot less

[00:31:04] innovation in canada unfortunately than the u.s yeah yeah good that's a good point so that's um

[00:31:11] here's the top 20 today okay simon the interesting point here is that microsoft exxon walmart berkshire

[00:31:20] and jp morgan are the five that remain in today's list so that list is apple nvidia microsoft google

[00:31:27] amazon saudi aramco meta berkshire tsmc eli lily broadcom tesla walmart jp morgan visa exxon united

[00:31:40] health novo nordisk the danish company that makes ozempic tencent and oracle that's the top 20 today

[00:31:49] before i continue what are the screaming differences between the top 20 today and the top 20 20 years

[00:31:56] ago in 2005 i mean it's definitely a lot more tech heavy i think that's the biggest thing i can say

[00:32:03] uh microsoft i mean three three good number three in both uh that's kind of funny and yeah i would say

[00:32:12] of course for those who think we're you know going away from oil um i think it just shows that they're

[00:32:19] still you know they're not at the same positions but there's still oil companies that are present in

[00:32:24] that top 20 with saudi aramco and exxon mobil uh doing the yeah the top 20 and both going from number

[00:32:32] one to you know more at the back of the list but still yeah to give you an idea it wasn't till

[00:32:39] 2003 so just you know a two year and a half before this data that i'm talking about that mark

[00:32:47] zuckerberg was messing around with with harvard data to make like a hot or not website which

[00:32:53] eventually turned into facebook later in 2004 it was such a different world the concept of

[00:33:00] computing platforms cloud the concept of people owning assets that touch billions of people per day

[00:33:09] was completely foreign that didn't exist that that concept did not exist and so that portfolio

[00:33:17] equal weighted roughly i did this math on finch at they're very close to you know between four and a

[00:33:24] half and five and a half percent each if this was one company it would have operating margins of 32 percent

[00:33:31] a dividend yield of 1.2 percent trailing revenue compound annual growth rate of 13 point sorry of

[00:33:39] 16.34 percent over the last few years forward estimates are going to expect that these companies

[00:33:45] are expected to grow at over 14 percent trailing profit growth of nearly 25 percent and 25 percent net margins

[00:33:54] is that it i rattle that off that is a amazing business that is quite good the yield is oddly

[00:34:03] close to the s&p 500 i don't know what the yield is currently but that is very close to like the whole

[00:34:09] index because i guess that shows how right how how much of an impact that the top markets can a cap

[00:34:16] actually have yeah correct you just have higher margins better network effects and more growth of course

[00:34:24] they're coming at expense more expensive multiples but this is what i'm this is this is the question i'm trying

[00:34:30] to answer in this segment is is that worth it and net margins for those companies in 2005 were well below that

[00:34:40] of the top 20 companies today it makes sense right we're talking about commodities banks telcos

[00:34:49] they're lower growth mostly domestic pharma they're mostly domestic businesses not all a lot of them have

[00:34:58] you know international presence but at the time we're talking about the companies that ruled america

[00:35:02] the companies we're talking about today are the companies that rule the world yeah it'll be really

[00:35:08] interesting to see how that evolves right because obviously i think i'm not breaking into everyone

[00:35:14] like trump is definitely more of a protectionist when it comes to that it'll be interesting what

[00:35:19] happens during his administration but it's probably gonna have ripple effects for you know several

[00:35:25] years after his administration it'll be interesting to see how that composition maybe it shifts back a bit

[00:35:31] more to america like i really don't know right the guess your guess is as good as mine but i find that

[00:35:38] very fascinating just to try and think how you know the tariffs obviously you know that's something

[00:35:43] that's in the news a whole lot how that might actually affect that composition and say five ten years from

[00:35:49] now yeah well put and to round out this segment it's very difficult to say to point at a chart of

[00:35:59] historical pe multiples for the s&p 500 and draw a conclusion because that business that i just

[00:36:07] described if we take the top 20 and equal weight them and assign them and look at the margins and

[00:36:12] the growth rate it would be a company you would pay a higher multiple for than the ones 20 years ago

[00:36:18] it's it you just would they're the the numbers are way better and so i think that they're simply better

[00:36:24] businesses and i'll round that out with what i just said which is those companies ruled america the

[00:36:30] companies now rule the world funny enough it wasn't even till one year later that in 2006 when amazon

[00:36:38] came out with aws began the new era of computing of cloud computing 2006 i mean it makes sense because i

[00:36:49] was listening um to a podcast with chris miller right who uh did the chip wars book and i think he

[00:36:55] did mention that that yes um has the it was kind of the start of the shift to mobile and was still very

[00:37:03] focused on cpu but it was also the early let's just say early years of kind of cloud computing so that

[00:37:12] would make sense around that time yeah yeah it ushered in a completely different uh capabilities uh

[00:37:19] around data centers cloud and you know spun up out of nowhere something that's doing you know run rate

[00:37:26] of nearly 110 billion a year now so yes the market's not cheap but the basket of the market is made up of

[00:37:35] these companies that are touching billions of people per day how much scroll time is meta getting per day

[00:37:45] you know most of their users are daily active most i think two-thirds almost 75 percent i had to look

[00:37:55] of month of daily actives sorry of the monthly actives are daily actives i believe that yeah

[00:38:04] that's insane right that's unbelievable product market fit so yeah you have a follow-up here so we can

[00:38:11] keep this going well yeah the the segment that's like speaking of markets being overvalued and i

[00:38:16] posted a tweet i think it's a good reminder that you know it was very simple you don't have to be 100

[00:38:22] percent in equities you don't have to be 100 in cash don't have to be 100 in bitcoin don't have to

[00:38:28] be 100 in gold don't have to be 100 in bonds or you don't have to be 100 in real estate and i think

[00:38:34] especially right now with the valuations that we are seeing and i will talk a little bit about the

[00:38:40] metrics and just like you said like it's very hard to say whether you know the valuations are warning

[00:38:45] sign or not uh some of the largest companies are more profitable than ever with the amazing margins

[00:38:51] but at the end of the day i think you can kind of mitigate that risk uh by being exposed to different

[00:38:59] kind of assets and that's something i've changed over time i used to be pretty much all in on equities

[00:39:04] uh with a little bit of bitcoin exposure uh when you know when we first started doing this podcast

[00:39:11] actually five years ago pretty much to the day now wow yeah yeah believe it or not and that's

[00:39:17] something that over time i have tried to diversify my portfolio a little bit about like across different

[00:39:23] asset classes and the reason i decided to pose that is because of course warren buffett with berkshire

[00:39:29] hathaway they recently came out with their earnings and i think you could it made headlines i think they

[00:39:34] released it on a saturday like they usually do just to you know keep it low key as as he usually does

[00:39:42] but their cash allocation and cash and cash equivalent including treasury bills i had ballooned to 325

[00:39:49] billion dollars usd now that alone doesn't really mean anything um i think you have to compare it to

[00:39:55] their total assets to really get a sense how much cash they have on their balance sheet can i can i

[00:40:01] jump in yeah it actually does mean something it's that they sold a lot of apple well i'm gonna get to

[00:40:07] that yeah yeah yeah i will get to that put the car before the horse but i see a lot of people being

[00:40:12] like ah he's so scared out of equities like oh he's sold a lot of apple and you own a couple hundred

[00:40:18] billion in apple you're gonna have a couple hundred billion in cash exactly because it's a direct

[00:40:22] correlation and you can see right so i have it from finchat.io this is on a quarterly basis but i

[00:40:28] think it's actually better to look at it on an annual basis because you can really kind of see

[00:40:34] the the increase in that cash pile and you have to compare it here like it'll for those of you are

[00:40:41] just listening so basically you have two bars one that is their total cash and one that is total

[00:40:47] assets and you can really see just looking at it that there's a bigger and bigger proportion of it

[00:40:53] that is actually cash and to put a percentage to it i think that will help so right now it's a whopping

[00:40:59] 28 of their total assets and that's up from 25 for uh from the previous quarter in the quarter before

[00:41:06] that it was 17 so yes as you said they have been selling apple pretty aggressively because they

[00:41:14] basically uh berkshire this year has trimmed by about two-thirds the apple um yeah there you go

[00:41:21] so yeah i just i just pulled up the ownership history of of berkshire hathaway and apple when they

[00:41:29] went real big into apple you know they increased their position from their portfolio of around 20 percent

[00:41:36] to nearly half of the portfolio in late 2020 and then you know it peaked at around 51 percent

[00:41:44] in q2 of 2023 and they've been selling quarter after quarter and still a massive position at 30

[00:41:50] percent of their equity equity holdings but no one's going to be surprised if they continue to sell

[00:41:57] that down to you know 10 to 20 percent or less yeah and no one really knows right so buffett doesn't

[00:42:05] really maybe it'll be asked a question at the next annual meeting who knows i mean it could be for a

[00:42:11] variety of reasons like we don't really know it could be that he's building a cash reserve it could

[00:42:17] be for tax reasons could be that he's finding markets like generally overvalued he could be

[00:42:23] preparing to make a big acquisition like we don't know it could be a combination of all three but one

[00:42:28] thing that buffett and i think we've talked about it maybe once or twice is a buffett indicator right

[00:42:34] so you're comparing the total value of the u.s stock market to the u.s gdp a very easy way to do it is

[00:42:41] just looking at the worldshire index worldshire 5000 index and for each point of the index it's about

[00:42:47] a billion roughly in market cap and right now using that while the total u.s stock market is about 60

[00:42:54] trillion compared to gdp around 30 it's actually a bit more than 60 trillion now and that indicator means

[00:43:01] that it's around 200 and historically whenever the indicator gets above 150 it has been a sign that

[00:43:10] the markets are very richly valued and that's because you compare it to the output of the economy

[00:43:15] as you compare the total value of the stock market to the output of the economy and typically even like

[00:43:21] 100 means that the markets are you know getting on the higher valued side but we're definitely on the

[00:43:28] the far end of that and buffett has been very uh outspoken about that that it is something that he

[00:43:34] keeps an eye on so you know is it the reason he's selling maybe maybe not i mean in the past when he's

[00:43:41] accumulated such large levels of cash i mean the last time was in 2007 so i don't need to explain to

[00:43:47] people but you know in case you don't know what happened 2008 2009 was a great financial crisis

[00:43:53] and buffett and berkshire were definitely able to deploy some capital which ended up being

[00:43:59] very successful you know with uh you know hindsight of course so all that to say that i think it's

[00:44:06] important to staying diversified whether you know we're looking at markets and you know things are

[00:44:13] getting frothy i think my personal view is that they are you know things are definitely up there whether

[00:44:19] you know it's the stock market whether it's even bitcoin right we talked about that earlier you know

[00:44:24] i will i've started kind of trimming back some position a little bit i've done that in the last

[00:44:29] couple weeks i've trimmed a little bit of my bitcoin etf holdings as well to build up a bit more cash in

[00:44:36] u.s treasuries which is mostly what buffett does own so when he has cash it's u.s treasuries

[00:44:42] treasury bills to be more precise so short term that he can easily sell and deployed but it kind of

[00:44:48] goes back to my tweet and what i was saying is that you know i think it's clear that buffett is

[00:44:54] selling into strength i don't think anyone can you know debate that clearly the market has been going

[00:45:00] up at least for the apple position he's clearly selling into strength you know there's nothing

[00:45:05] wrong with booking some profits again i'm you know if you've been listening and you know me like i'm not

[00:45:10] an all or nothing guy so i think it's very fine even if you still love the company but i've been

[00:45:16] pretty outspoken about apple now for like probably two years where i still think it's very highly

[00:45:21] richly valued as profitable as it is for a company that is slow slowing growth and that is trading at

[00:45:30] those levels i do find it a bit of a head scratcher um i'll be very honest negative year over year

[00:45:36] they're in this like real tailspin because the they made the iphones too good and the replacement cycle

[00:45:43] lengthened too long now they're panicking to make worse phones and you know remember right in the

[00:45:49] like 2000 and early 2010s i don't know the exact dates of all their product releases but they it felt

[00:45:55] like every two three years they had like a new actually game-changing product and now last time

[00:46:01] you heard someone talk about the vision pro while they scaled down scale back the production i guess

[00:46:06] it's not selling yeah yeah i'm showing up on the screen here yeah the p trailing p e price to earnings

[00:46:15] ratio for apple and i've statted out the minimum since 2016 and and the medium so it's currently at 37

[00:46:24] it got as low as 9 in 2016 so when buffett made two huge allocations to apple

[00:46:33] in 2016 when the p e was around 11 and again in q4 20 when the p e was around 15 16 18 range so

[00:46:45] still mid teens yeah not at 36 times right like i think there there's so much context

[00:46:54] around the back the brinks truck up in the purchases he made which may go down as

[00:47:02] dollar for dollar the best investment of all time the allocation to apple it may yeah it may go down

[00:47:11] as the like in his 90s as the best investment of all time dollar for dollar not necessarily percentage

[00:47:18] but we're talking about moving hundreds of billions of dollars of capital in this yeah and especially

[00:47:24] when you consider that berkshire has to make massive bets to move the needle too yes right so he has to

[00:47:30] like with he has limited options that's what i'm saying that will move the needle and to be able to

[00:47:36] do that at like the size that berkshire was at the time as well is pretty impressive but again we don't

[00:47:43] know the reason i suspect that it's he probably sees similar things that we're seeing that would be my

[00:47:50] my guess i could be completely wrong but he's probably seeing that you know unfortunately apple as

[00:47:56] sticky as it is as great as a company it is growth is slowing and the multiples are not reflecting that i think

[00:48:04] you can make the case for some of the other big tech that you know yes they're richly valued but there's still

[00:48:09] growth there apple i mean like we've looked at it i've looked at it like you know a few weeks ago like i know what

[00:48:15] the numbers are like literally it's not growing like it's that's what it is like they're buying back share it's great but at the

[00:48:21] end of the day like you can just buy back so many shares right like i guess ultimately the end game is

[00:48:26] you be you know you buy back all of them and you become private yeah like i mean yeah so that's kind

[00:48:33] of my thoughts on that so it's for me it's definitely when i see a lot of euphoria like right now i've

[00:48:39] learned over the years i've learned from 2022 and the peaks of 2021 that i think it's probably a smart

[00:48:48] thing for i'm doing it for my own and obviously people can do it's not investment advice they can

[00:48:52] do whatever they want with their portfolio but i'm definitely gonna i have started and i'm taking a

[00:48:56] little bit of profits off the table you know i'm not all or nothing but i think there's nothing wrong

[00:49:03] with booking some profits i just thought of a really good idea let me trademark this before the pod comes

[00:49:09] out the uh fin chat buffett indicator which would use ai to detect every time there's chatter online

[00:49:17] about people saying that warren buffett is washed or that they are smarter than him is probably a good

[00:49:25] indicator of a lot of hot air in the system that is something i saw a lot in 2021 you saw guys like

[00:49:34] chamath go on and say he's the self-proclaimed next buffett dump a ton of spacks on retail and make

[00:49:42] out like a bandit that is maybe that's the real buffett indicator yeah it's how many times people are

[00:49:49] patting themselves on the back saying that they're smarter than buffett and or that he's washed up

[00:49:55] is typically a good time of to just check just a market pulse on the euphoria

[00:50:02] and maybe just finish on this but you know people will say well you know buffett has never been into

[00:50:08] bitcoin for example right we talked about that but to me like that poison squared seems to be going up a

[00:50:14] lot well that was charlie that was charlie that was charlie but i think it's just a reminder that

[00:50:19] you can build your own strategy and take you know wisdom from different great investors whether you

[00:50:27] know they'd probably you know you don't follow exactly what they do that's fine but i mean i still

[00:50:33] have learned so much from warren buffett i have a different investing strategy than he does and that's

[00:50:39] fine but i think it's just a good reminder that you know you don't have to follow any one person

[00:50:45] kind of move by move you can you know take tidbits and build a strategy that works for you

[00:50:53] yeah just thought of like i don't know if you ever played the sports video games back in the day when

[00:50:58] you could do a create a player and you could like pick like speed you had like you had 100 points to

[00:51:06] spend it was like i want some level of speed some level of size strength explosiveness whatever it is

[00:51:14] like if it's hockey it's like shot stick handling you know like you have 100 points to spend on your

[00:51:20] player uh create a player it's the same thing with kind of borrowing pieces of different really

[00:51:28] successful investors that have come before us you know maybe i'm 40 buffett 40 nick sleep 20 chuck

[00:51:37] ackery like that i feel like that's where i want to exist right and so you don't have to take every

[00:51:42] single thing as bible you take it you recognize it just like you know you and i do on this

[00:51:49] podcast you are the big bitcoin bull i should have been more listening even more but i took some

[00:51:55] pieces of that i'm like okay i'm not i'm not gonna ignore this anymore it's it's too crazy not to

[00:52:02] that would be an interesting segment to see like how we break down kind of how we view things uh for me

[00:52:08] there's definitely some buffett i would say ray dalio big yeah you're a dalio guy yeah i would say

[00:52:14] the more i read about stuff is probably more that my bitcoin conviction is lynn alden lynn alden is just

[00:52:21] phenomenal she's great by the way yeah oh she's good like she's very like i don't know she never gets

[00:52:27] over like she's if you want like someone that is steady and very kind of you know never gets um

[00:52:34] you know too far on one side another just stays you know very objective and uh looks at all different

[00:52:42] asset classes um doesn't will do the work doesn't have preconceived notions i think she's fantastic for

[00:52:49] that yeah shout out to her i guess that's the pod thanks for listening folks much appreciated jam

[00:52:55] packed here uh lots to lots to discuss we'll see what happens over the next few weeks there's certainly

[00:53:02] a lot of excitement for the markets right now and and um you know what's gonna happen over the next

[00:53:11] four years i think that's clearly coming out in the price it's a reminder that the long run matters

[00:53:23] more than the next three six months right that's that's what this show's about it's about

[00:53:31] the next three to six years not the next three to six days and i think that that's a key difference

[00:53:39] in your understanding it's fun to keep up it's fun to keep up it's fun to keep up with the markets

[00:53:44] fun to keep up what's going on keep track of all that stuff but you know what's even more fun to keep

[00:53:49] track of is like the actual fundamentals of the businesses you own because that's what's gonna matter

[00:53:55] that's what matters more than anything so uh you know stay the course folks anything else to add

[00:54:03] i think that's a great way to end it we'll see in a few days you can check out our website the

[00:54:09] canadianinvestorpodcast.com we got lots of links there other show the real estate show our patreon

[00:54:14] fin chat everything there the canadianinvestorpodcast.com we'll see in a few days bye bye

[00:54:19] the canadianinvestorpodcast should not be construed as investment or financial advice

[00:54:25] the host and guest featured may own securities or assets discussed on this podcast always do your

[00:54:33] own due diligence or consult with a financial professional before making any financial or

[00:54:39] investment decisions

[00:54:40] decisions