The Canadian Investor - 10 Stocks to Watch for 2022

Episode Date: January 10, 2022

In our first recording of 2022, we start the episode by going over 10 stocks to watch this year. Simon then breaks down defined benefit pension plans and talks about common myths and misconceptions about this type of pension plan. Tickers of stock discussed: BMO.TO, SPGI, MCO, MSCI, CP.TO, PYPL, RCI-B.TO, SJR-B.TO, TCEHY, BABA, ZM, DOO.TO  https://thecanadianinvestorpodcast.com/ Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Stratosphere 🚀 https://www.stratosphereinvesting.com/See omnystudio.com/listener for privacy information.

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My name is Brayden Dennis, as always joined by Simon Belanger. This is our first recording in the year of 2022. We have 10 stocks that we are watching in particular. We think that there's something interesting about them that we want to talk about. Simon, how are you feeling? We just did the longest break of recording. We might be a little rusty, but I feel like our brains are going to be fresh. So I'm excited, man. Yeah, I'm feeling good. Happy to be back. Happy to record again in 2022. Lots of stuff to talk about and get started. All right, let's kick it off. But before we do that, I want to do some coffee shout outs that I didn't get to at the end of last year. Let's start out number one

here with Jay Forbes. He bought us a coffee. Thank you. Chessie said, thanks for teaching us so much. J Dub says, excellent podcast, gents, huge fan and look forward to Monday and Thursday podcasts. And Bud bought a coffee for TCI pod. He said, TCI podcast is informative and entertaining. Enjoying the two times a week format, highly recommend. And Stratosphere, which has a wealth of valuable information. Keep up the great work. Thank you guys so much. We appreciate you. All right, let's get into it here, Simon. You got the first one here for your stocks to watch for 2022. Yeah, let's do it. The first one on my list is BMO, so Bank of Montreal. The reason why BMO I think is worth watching is

because in late December, they came into an agreement with BNP Paribas to acquire Bank of the West and its subsidiaries for $16.3 billion. So even though we were off, the investing world still kept going. We didn't get to this big news while we were not recording. The acquisition will bring 1.8 million new customer for BMO and bring an additional 514 branches. The transaction is expected to close by the end of 2022. It's hard to say if BMO will see benefits of this transition in 2022 since we don't know exactly when it will be closing,

but I think it's still worth watching because I really don't know how the market will react here i've seen what bmo has mentioned and they seem like they have a good reason to be making this acquisition but it does raise some question marks bank valuations are not at their cheapest right now they've really come back since the start of the pandemic obviously they're sitting on a lot of money but they are also acquiring a lot of branches when the world is increasingly going digital. And BNP Paribas clearly didn't love the business if they sold it. I know they're trying to focus a bit more on their European business when it comes to BNP Paribas, and it does align with

other European banks that have exited the US market because they had trouble competing with huge US banks like, for example, JP Morgan, Bank of America, Wells Fargo, these large banks. So for that reason, I think it'll be an interesting Canadian banking stock to watch in 2022, but also probably 2023 and see if they actually are able to leverage the acquisition and make that accretive to their earnings going forward. You bring up an interesting point about bank branches. And perhaps this is just random tangent, but I'm curious what you think of that because I really, honestly honestly do my best to avoid going to a bank branch if I can. Some of the Canadian banks just feel like absolute dinosaurs where they're like,

no, this has to be done in person at a branch. And I'm like, this seems so, so simple. And so I'm curious, do you go to the branch or is this something that you avoid entirely as well? I try to avoid it as much as possible. I'll be honest. I bank with a digital bank. There is possibility of me going to some of their branches if I do need things. But for the most part, the only time I've been to a branch in the past two or three years is when we bought our house and we had to get a bank draft. Right. Yeah. Yeah. That was the only time for everything else. I mean, I can do it online. So that's why I feel like, I don't know, it's a bit of a head scratcher. They also mentioned they weren't planning on closing any branches.

You never know that might change, but yeah, just worth keeping an eye on. I just find it interesting that they're trying to expand in the US, but specifically the branch part. Yeah. It's like one of those things where I get it. The banks want to have an omni-channel approach. That makes a lot of sense, especially with so much of their business legacy being you do in person at a branch. I just find it strange how still today, some really easy tasks are mandated to be done out of branch. And I hope that changes over time because waiting in line at a bank branch is one of the worst things ever. All right. I'm going to actually pair my first one stock to watch here with actually three.

And the reason for that is because they kind of fall into a similar bucket about a particular trend that I find very interesting in 2022. So just yesterday, now into the 2022 calendar year, S&P Global acquired The Climate Service, which is a company. The name of the company is called The Climate Service. It's an ESG data provider. So for those who are not familiar with ESG, it's environmental social governance. So they provide data on ESG and help companies understand what their ESG profile is and the risks associated with them. Now, look, this is the forefront of every large enterprise's strategic goals for the year. Some of it's fluff. Some of it is silly. Some of it's very real. Regardless, there's money to be made here. And the three companies

that are going to be making money on this is S&P Global, ticker SPGI, Moody's Corporation, ticker MCO, and MSCI, which is ticker MSCI. These are all three companies that provide data and market intelligence. It's sticky software as a service segments of a larger business that they all own. And I think that ESG is not only a trend for market participants, but it's also a trend for businesses to start subscribing to these types of services to understand what their ESG profile is. And there's going to be increasing regulation around companies needing to be able to have that data at a split second notice to be able to report on it. And I think that there's some really good money to be made on that trend. Yeah, there's a big push from institutions too

in that sector. I know a lot of pension plans even specifically, and I'll be talking about pension plans later. So that's why I figured I mentioned that, but they're getting more and more interested in having those funds that the pension plan manages in at least a portion of them in a fund that has an ESG mandate, or at least requiring the fund managers to consider ESG when they do make their investment choices. So it seems like it's not going to be stopping anytime soon. We saw a big push last year and I think 2020 as well. And I don't see this stopping anytime soon. So I think it's probably a smart move on the part of S&P Global to acquire climate service. Yeah, that's a good point too around fund management and stuff. That's another prong of growth here. And what we're noticing is that the addressable market for

ESG in terms of S&P Global taking advantage of that is there's three things happening. There's the fund management aspect and the finance folks who are needing to care about this. Their clients need them to care about this. So that's one area. There's increasing regulatory pressure and regulation being instituted on companies to actually have this data available. And three, there's an additional approach from large enterprises to go above and beyond what is required in ESG. So all of that comes together to make a very good business. Yeah, exactly. The next one on the list is Canadian Pacific. Another piece of news that we weren't able to do because we recorded our episodes so much in advance, so we were able to

take a little bit of time off. But the acquisition of Kansas City Southern was completed on December 14, 2021, completed with an asterisk because the transaction is still pending regulatory approval from the U.S. Surface Transportation Board. Until then, the American Railway shares are actually placed in a voting trust and they are operating independently from CP until the decision is made on the US front. This one is very simple to keep an eye on. Obviously, will the US approve the acquisition and how will the market react one way or another depending on the regulator's decision? So far, the bits and pieces that the regulators have said in the US is that it sounds like they're leaning towards approving but of course this could change a whole lot. Clearly they warn of the same

view for Canadian National Rail because it essentially made them drop a higher price bid for Kansas City Southern. There was a lot of drama. we talked about it last year in length it's really intriguing for me as well as an investment I know the price paid was not cheap I think if I remember correctly it was about 27 billion 28 billion I don't have the exact number here but if it does get approved their rail network will be massive going from east to west to Canada. It'll go through the central US in the state all the way to Mexico. It'll really rival CNR's trail railway in Canada and the US as well. So it's one that's really intriguing for me. I'm keeping an eye on it because I wouldn't mind owning the two big railways in Canada, especially if CP long term ends up acquiring Kansas City Southern.

especially if CP long-term ends up acquiring Kansas City Southern? Both of them have a lot to watch in 2022 in their own respect, right? CP has this big acquisition. And then CN, there's some questions around management. There's so much activist pressure from TCI fund management. All of those boil down to one of them got KC, well, pending this approval, and one of them didn't. And there's kind of particular situations around how that plays out this next year, one with they actually made a website and it's like, get cnrailbackontrack.com. I forget what the exact URL is, but I thought that it was pretty clever from them. So they both have something to watch in 2022. And you bring up an interesting point as an investment. I always took the side of, I thought that the price being too high for CP rail was short-sighted in the fact that this is a generational opportunity when it comes to an

acquisition. The network that it provides is significant. And 20, 15, 30 years, you name the timeline, we'll look back and say, okay, this was a once in a lifetime opportunity in terms of being able to buy another railroad of KC Southern size. So I actually think this is great for CP Rail long term. Even if the price was high, I think that that is short-sighted from current investors. If they have that opinion, I think long-term, it's great. That's what I think. Yeah. Yeah. No, well put. All right. Let's move on to one that I have here, which is PayPal, ticker PYPL. We're all familiar with PayPal. Now the stock is down 20% over the last 12 months. However, let me give you some statistics on their financial performance over the last 12 months. So the stock's down 20% over the last 12 months, but during that time, revenue increased 23%, transaction volume increased 21% to over $1 trillion at $1.8 trillion. That scale is nuts. Total payment volume

on their latest print rose 26% year over year. So it's not like it's like decelerating growth. This business is doing very well. Now, look, I get it. There are lots of existential questions around payments. And what is the future of payments look like in the next 20 to 30 years? How does it look like with the payment rails, with the card networks? How does all of that look? I get those questions. But the reality is, is that there's a lot of overblown pessimism for a business that's doing really well. I guess that I will tie this in. I keep cheating. I'm tying in other things here, but I want to tie this in with, hey, Stripe, go public this year. I'm begging you. I will buy shares at almost any valuation. I mean, seriously, Collison Brothers, take your baby Stripe public, please.

I'm begging you. For those who are unfamiliar with Stripe, they're the payment processor that a huge majority of the internet collects payments on, especially fast-growing software as a service. From large businesses like Shopify who use it to small businesses like my company, Stratosphere, the moat with integrations they're building, among other things, very low friction to set up payments for your internet company, stickiness for existing companies. Stripe is, in my opinion, the perfect business. Yeah. I mean, I own PayPal. So definitely for me, it's something I've been just keeping an eye on.

If it keeps dropping, I will probably just add more to my position it's company I really like I think you know I think it all comes down to show me a high growth stock that's not had a pullback aside from the FANMA or whatever we want to call yeah so it's probably in that same I mean I don't know if there's really that much of a reason for it aside from just a pure valuation perspective, because they're still growing very quickly. I think it's also maybe some people after what, two years now of the pandemic, maybe taking some money off, seeing PayPal more as a stay at home stock. A lot they got, they saw a huge increase in volume because of the pandemic. So it could be a kind of a mix of both things. but it's a very solid company. And look, I'll kind of restate it for me. I just do a basket approach and PayPal, Visa, MasterCard and Square and probably add Stripe if it would go public. Oh, yeah, you got it. I'll convince you. I will. I'll sit you down and show you why it is such a good company if they do go public.

But back to PayPal, you're right. It's one of those companies last year that just is down yet the financials look fantastic. Now, I will say it is coupled with some kind of negative sentiment on traditional payments, right? Where does it exist? What does it coexist? Or does it exist at all in a crypto first world? Those are questions that I think a lot of people really are really wondering and battling with. And I think that it's going to be really hard to know that answer at this point. Yeah, I think even in on the crypto side, even looking outside of the big cryptocurrencies out there, like a Bitcoin and Ethereum, for example, if you just look at other cryptos like potential of CBDC, so central banks, digital currencies, those could have a big impact.

We're seeing, I think, stable coins, more and more adoption. So those are things definitely that could impact a business like PayPal. I don't know exactly how it would impact them going forward. Do they integrate it? That kind of remains to be seen. If you have an answer for me, let me know because I don't know. You probably don't know either. No, I don't. And not many people do.

It's still just, at this point, TBD. Yeah, exactly. Like Jack Dorsey would say. With a bunch of numbers at the end. Exactly. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the

ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized,

hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. Now the next one, this one is just for pure entertainment purposes.

The one I'm looking at, Rogers Communications. So obviously our beloved Canadian drama corporate family, to see what will happen in 2022 with everything that happened towards the end of 2021 with the family and the trust and Ed Rogers as well. But I think the big elephant in the room here is not the family drama, it's actually the CRTC hearing related to the Shaw acquisition because that would make Rogers a massive teleco in Canada and there's a lot of people that are concerned that this would lower the competition I was looking at some of the information that came out in the initial CRTC meetings and I think it was late November or December and Rogers was trying to

argue that it would create more competition somehow so that's an interesting point to take but they would not agree to any type of you know price stability either so it's it's just an interesting one to to just follow for all those reason. On the one hand, I love a bit of a drama like everyone else. But on the other hand, I think the Shaw acquisition is definitely a big story going into 2022. Whether you're a Rogers or Shaw shareholder, it will have a big impact either way. I agree. And look, Canadians have been getting screwed on the cost of data, particularly in this country. And it comes down to there's this oligopoly. And if this happens,

I mean, the players just, the number of them decreases. And I don't see how that's a good thing. I could be wrong. It's not a sector I follow particularly well because I'm just not interested in owning many of them, especially not Rogers. But Canadians are getting screwed on the price of their phone plans. If you look at a graph of all the countries on what they pay on a per gig basis, Canada is at the top of that list. And it's not great. And I think that I'm kind of going on a tangent here, but it's not a good thing. And so I think that regulators are going to

be thinking about that. And they're going to be cautious of that. And they're going to have that in their back of their minds, I believe. Yeah. And the last thing I might add to the teleco's defense, Rogers included but you know tell us bell shaw i mean canada's a big country right in terms of land area right our population is very small compared to the amount of land that needs to be covered and these companies have to make major investments is ridiculous the capex is major and it's not like we have you know 300 million people living in canada like the u. where it can, you can get that return on investment for those huge capex investment way easier. I think there's that in the balance of things. But I agree with you, it's not cheap in Canada for cell phone plans. But I think that's what the telecos tend to try to argue is they, they don't have a big base of population in Canada, but they have a huge country to cover.

And I get that. I mean, look at the CapEx on installing the infrastructure and then having to continue to upgrade it over time. Every time there's a new latest G, 3G and 4G and then it's 5G. The CapEx hit is ginormous. And you're right, the population density is not ideal if you are a carrier. That being said, those are the facts, right? That's what is the real case. However, what I'm saying is that the political sentiment and decisions are not always garnered by what

we're talking about. And I think that there's political sensitivity around how much we pay. And so that'll be a talking point just to be in the mix, right? That'll be in the mix. Yeah, definitely. All right. Next year is Chinese tech stocks, particularly Tencent and Alibaba, are ones to watch for this year. This one just kind of goes without saying. We've talked extensively about these companies last year on this podcast. Seems like they come up every episode, but Chinese tech just got absolutely slaughtered. They got crushed in 2021. And the Chinese Communist Party showed that they are willing to do as they please, even if it can majorly hurt their own domestic

businesses, particularly technology. These are two massive, great and durable businesses, but they're not durable if they get ripped apart at the seams internally by regulators. So this is something that needs to be watched and is interesting to look at. They both trade at very cheap bargain type prices. Value stocks, lick your chops. Value investors, lick your chops at Tencent and Alibaba. I mean, look at any metric compared to the growth, compared to what the company is on a quality perspective, and it looks extremely attractive. However, if they get ripped apart by regulators,

and they continue to be, then it's not a good deal. And so these are the kinds of balances that investors are trying to figure out right now, including myself, including you and I, I'll speak on your behalf. And so I think that it's going to be important to watch what happens next year because watching what happened in 2021 was extremely interesting. And I think that it's going to be a story that continues to unfold in front of us. Yeah, definitely. I think the Chinese stocks, I mean, it's a bit of a wild card. You don't know exactly where China will be going from a regulatory standpoint. We're seeing them. So I talked about CBDCs earlier. So central bank digital currency, China is actually the country that's leading the charge the most with its own digital currency. I think they're going to be, they've started doing tests.

They will be doing more tests, especially during the Olympics. That's their plan. They're having these wallets that will be available for people to test out. And one of the big reasons that they want that is they want more financial control. So more visibility on what their citizens are doing in terms of finances. And the reason why I'm mentioning that is one common theme with China is they want control. So I think as unpredictable that they are, I think they're predictable in the way that they do not want to lose control. And if you want to do business in China, you have to play ball with them. I think that's what they showed in 2021, even 2020. And I think we're going to continue to see that going forward. And that's what Apple did so well, is play ball with them in an extremely

advantageous and profitable way. And so we saw that play out. If you are interested in, by the way, there are tons of cool podcasts and long, good journalism about Apple in China. And it is so confusing. I don't know what the right word is, but it's so interesting and confusing and fascinating all at the same time. You'll get into some interesting stories if you go down that rabbit hole. Yeah, definitely. I've listened to a few and it can be also as a shareholder a bit conflicting at times. I'll just say that. That's the right word. I couldn't figure out what it was. Conflicting is very good, Simon. So now, a company that's still in the tech area, Zoom Communication, we're recording

this on Zoom, while recording this locally, but on Zoom as well. There's probably no other stock that embodies the stay-at-home stocks more than Zoom. Maybe Peloton's another one, but Zoom is definitely one that comes to mind immediately the stock is down almost 70 from its all-time highs reach in october of 2020 their guidance for fiscal year 2022 just for fyi they already reported q3 2022 so they have this weird kind of reporting schedule so their guidance for the full year is 4..08 billion in sales. They are free cash flow positive. They are still not cheap. They're trading at 12 times sales.

Before the pandemic, I thought this was just another video conference product. But since then, I've tried WebEx, Teams, and Zoom. Obviously, before the pandemic, I had not tried Zoom. And I have to say, personally, Zoom is by far the best experience I've had. It also usually has the best quality compared to the other services I've tried. For me, it's really an intriguing stock. It's still expensive, like I mentioned. But I want to continue seeing from Zoom in 2022, the actual calendar year, not their reporting period.

I want to keep seeing high growth rates, keep those retention rate highs. They actually have been at 130% retention rates for 14 consecutive quarters for customers of 10 employees or more, which is mind-blowing. If those things continue in 2022 and the valuation becomes a bit more palatable, it's definitely a stock that I'd be interested in starting a position in 2022, probably towards the end of the year. I agree. It's one of those companies that had such a run-up and then come back down to life. And it's like, okay, can these growth rates really persist that they benefited from when everyone was first sent home. And no, they're not going to grow over 300% on the top line like they did every year. Of course not.

But you mentioned those retention rates. I do believe they have consistently strong pricing power moving forward. The brand recognition and goodwill is legit. It's very real. Their product, as you mentioned, is fantastic. I do believe it's the best as well. I agree with you on that. It seems to just work. You know what I mean? It just seems to always work. And the other ones, I can't say that with complete confidence. So I agree wholeheartedly there that this valuation has come back down to a much more reasonable realm. And I think it's even interesting here. You're talking about like continued drawdown.

That just gets it even more interesting. But I think even here, given its potential and its staying power, I think it trades at a pretty reasonable price after going to mental, nosebleed, face-ripping prices in 2020. I think that it sits at a quite reasonable multiple here. Yeah, definitely. Nothing more to add on that. And probably actually the last thing I'll probably mention about Zoom is you hear people actually say like OLED Zoom. Yeah. Like it's actually become a verb. It's fully a verb.

Yeah. Yeah. Yeah. Yeah, exactly. Just like the next company that you'll be talking about, they have some products that people refer to for a specific category. That's right. Yeah, that's a great segue. The last one for me to watch here is BRP.

Right. Yeah, that's a great segue. The last one for me to watch here is BRP. I talk about this company quite a bit, not only because I do love their products, but I think that it's an interesting stock. It's definitely an interesting stock. So BRP, Bombardier Recreational Products, ticker DOO, D-O-O on the TSX, or DOO with an extra O on the NASDAQ, D-O-O-O. Now BRP designs, on the NASDAQ, D-O-O-O. Now, BRP designs, develops, manufactures, distributes snowmobiles, ATVs, all-terrain vehicles, personal watercrafts under their main brands, which are Skidoo, which is the snowmobile, Seadoo, which is the water ski, and Can-Am and Lynx, which are their all-terrain vehicles. And they have other categories as well, like boats and stuff. which are their all-terrain vehicles. And they have other categories as well, like boats and stuff. Now, this is a company I talk about all the time, but it is a damn good company. And they have serious brand recognition, as Simon, you just mentioned. And you add that in with some really

prudent, solid, underrated capital allocation. They've been compounding EPS very consistently. And not only is the business growing, but they have been aggressively deleting the share count. Shares outstanding on BRP have gone down aggressively. You can chart it out. It's really solid. Now, the reason I have to bring it up here as one to watch is because I think the stock is a good bet. I don't personally own shares yet in brackets, but I have it in the Canadian equity model portfolio on Stratosphere. And I want to add some more. I believe that it is a solid name for Canadian stock ideas. And more importantly, for the context of this segment, is that yes, the stock did actually finish up 25% last year. I'd been kind of like

consistently talking about it on this show, Simon. You can vouch for that. The stock did finish up 25%, but it was a roller coaster of questions around supply chain. Is the growth pulled forward from COVID, buying outdoor vehicles when they're forced to do outdoor activities. Personally, I do not buy that. It has been a consistently great performer financially, from a brand perspective, in the amount of volume they're shipping for a long time now. And I suspect that it will persist into the future once they can get that production at full tilt and meet the ridiculous demand for orders, that back order volume is gigantic. For a stock trading at 10.5 times earnings, it is interesting to watch in 22 as these questions are answered. I think that the multiple can greatly expand if some of these

questions are answered around pulled forward growth and being able to actually fulfill supply chain. And so I do think that there is very good chances of multiple expansion on a company that is consistently compounding, has great brand recognition and wonderful products. The list goes on. I think that it's an underrated Canadian compounder. Yeah, yeah. BRP, I mean, you're the one that's been more the fanboy for in the past couple of years. But I remember we talked about them on a few earnings episode. And yeah, the numbers look all good. I think you mentioned it. Probably supply chain constraints, just something to keep an eye on. Probably something to keep an eye on to any kind of...

Manufacturer. Manufacturer, exactly. So that's one thing. And clearly, it would be if there is a severe recession or something like that, that's probably a type of company that would take a hit just because that's something people can easily cut. But whether that happens or not, obviously, it's hard to say. Those are probably the two biggest risks that I would see. But then again, I thought they would struggle when the pandemic started. And I was wrong because I thought, you know, we'd probably be entering

a recession and people would cut back on those type of expenses. And I was wrong because we didn't really enter a recession. I think we may have had a quarter or two, but not quite the traditional definition. So I mean, they've been very resilient in this environment. So I've had to bet on them and they probably will continue to be. Yeah. And I just looked it up. I think I said 25% for the year. I just looked it up again. It was actually over 30% performance in 2021. So it greatly lapped the market. So I'm like self flexing right now. But the reality is, is that a company like this, yeah, it finished up, had a great 2021, especially compared to the index. Yet it had two drawdowns. It had a drawdown from April to June of 25%.

It had another drawdown from September until December of 22.5%. So this is an interesting, like I was talking about, it was a roller coaster of performance around these kind of questions that the company needed to answer and I think needs to answer next year. And I think that that's where you can find some multiple expansion. But it goes to show you, Simon, what we talk about so much is, yeah, stock can finish up over 30% on the year. And you had two drawdowns of over 20%. Now, this is the nature of owning equities. It's the nature of owning even the best companies is that you're subject to extreme volatility. The reality is you have to focus on the business performance. I think that that's a really good use case right now of what we're talking about,

which a company that finished up 30% on the year and had drawdowns of more than 20% twice. I think it's an interesting talking point. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer

myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started.

But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. That is Airbnb dot C-A forward slash host. So now we're going to transition to our next topic. I've been getting a lot of question about pension, people asking about that. I wanted to talk about different pension plans, but then that would have been such a long segment. So I'll probably talk today. I want to talk about

defined benefit plans, also known as DB plans and what I'll be doing because it's also RSP season and I think it goes in well in future episodes I'll talk about defined contribution plan and then after that we can do an episode maybe a segment on RSPs and how your pension impacts your RSP room and so on because I know a lot of people have pensions. And from my experience, I work in this, I know it extremely well. A lot of people don't understand their pension very well. So including me, like I used to work for the Gov, as you know, and for a guy who hosts the Canadian investor podcast, to say that I was an expert on my pension would be a complete lie. Yeah, exactly. So like I mentioned, there's

two type of registered pension plans that you'll see. One is the fine benefit DB, like I mentioned, and that's what I'll be talking about today. And the other one is the fine contribution or DC pension plan. One of the most common things you'll often hear people saying is they'll say a blanket statement like a DB plan is better than a DC plan. My answer to that is that it depends. Basically, DB plans and DC plan will vary a lot. There are just two categories, but within those, there's a lot of differences within all the plans. So today, what is a DB plan? So a defined benefit pension plan is a plan that promises you a payment when you retire based on a formula. A lot of people will view this as guaranteed income when they

retire. However, using the word guarantee, I think it's a bit misleading and I'll touch on this a bit later. The first thing you need to know is that your pension payment when you retire will be dependent on the formula used for the pension payment. And that's really important because not all formulas are the same. Some plans are much more generous than others. The formula of a plan could be something like the average of your best five years times years of pensionable service times 1.5%. The 1.5% is what we call the multiplier. This is just a simplified version, but it would give you an idea. So if you want to know what the formula of your DB plan is, if you do have a

defined benefit pension plan, just reach out to your plan administrator and ask for the pension booklet, which should have the information. If you're not sure who it is within your company, where you're working, just ask your HR department. Usually that will be a good place to start. So what makes one DB plan better than another DB plan? Well, the first thing is indexation. Indexation means that a plan is indexed to keep up with the cost of living or inflation. The metric that usually will be used is CPI. That's what they'll base the increases on. Depending on the pension plan, you will either have full indexation, conditional indexation, or no indexation at all.

Full indexation just means that your pension payments when you retire will follow CPI increases regardless of how high these increases are. Conditional indexing means that there will only be indexing if certain conditions are met. So there's different types of conditional indexings that you might encounter, but one that you could see would be something like it is indexed, but it's capped at 2%. So if the CPI was 6%, well, they will only increase the pension payment by 2% because of that cap. If it's lower than 2% then it will be fully indexed because it didn't reach that cap. No indexation is pretty simple. It just means that your payments won't increase over time regardless of the cost of living. So right there you can see that a plan that has no indexation versus full indexation just based on that it's really

different the formula uses another important thing so with all other things being equal a plan's formula which has an average of say your best consecutive five years like i mentioned earlier times your years of pensionable service times 1.5 percent as the multiplier will be very different than the same plan, but with a 2% multiplier. That'll make a big difference in the end, just that 0.5%. The last thing that people tend to, I would say this is the one thing that people tend to overlook the most is how well funded the plan is. So the most common method you'll see reference here is going concern valuation. That's a good thing to learn because you'll see that in financial statements when you look at companies.

Going concern typically just means that they're properly funded for its current and future obligations. Same would be for a business, right, Brayden? If there is going concern, if the auditor issues a statement that there is a risk of them not being able to meet their going concern, that means usually there's a pretty big risk that they might go bankrupt, right? So pension plans, it's the same thing. So essentially it factors in future pension payment, active employees, retirees, retirees, current contribution, return on investments for the pension plan. So for this, you'll want to see the funding for the plan as close as 100% as possible. It will vary from year to year oftentimes because the assumptions that

are used by actuaries will change depending on the plan, but are also the market. on the plan, but are also the market. At what percent funded are you concerned for a pension in general? What's like a rule of thumb or kind of like a gray area where it becomes a little on the riskier side? It doesn't mean like they're not going to be able to meet their obligations, but it's just kind of like, well, this pension is quite underfunded. I know that in the GFC in 08, pensions were very low percentage-wise. So, I don't know what they... Do you know what they were kind of median at that time? I don't know the numbers from that time, but essentially, you want them to be as close as 100% as possible. If you'd see something in the 80%, especially when you're looking at going concern, because there's another type of valuation that's way more intense, if I'd like to say,

and that one will typically be lower and that's not the end of the world. But the going concern, I mean, anything consistently below 90%, first of all, you shouldn't see that because usually, you know, the actuaries will highlight that and the pension plan, their plan sponsor, usually it'll be the employer, but it could be someone else. They'll be required to basically make additional contribution to the pension plan to make sure that it's as close to 100% as possible on a going concern basis. But it can create some issues if a company goes bankrupt, and they are fully funded for their pension plan. But, you know, years later, the investments are not going well, they still have these obligations, then, you know, the plan could potentially be underfunded, and there's really nothing that can be done. So, you know, retirees could look at potentially some reduced pension payment at that point.

So as the pension goes further and further away from 100% funded, does that mean I've never run a pension fund before, but I'm just guessing here operationally, did they just kind of go further out the risk spectrum to try to get some yield or try to get it closer to 100? Is that basically what happens? Like they go further away from fixed income in terms of asset allocation? I think overall, from what I've seen, pension plans are definitely going a bit more in equities, but they're still required to hold a certain amount of fixed income. Usually what will happen if they require more funding, there's going to be kind of a few different things that they can do first. The employer can just contribute more to

the pension plan. And that's important to know because if you look at companies that have a defined benefit pension plan, that's why it's a liability. Because you never know what type of money the employer will have to put in the pension plan down the line. Because that will just fluctuate, right, based on the market. Another thing you might see is the employee contributions going up. So that's something else you may see going up because the plan is underfunded and they need to make some changes. And another thing you might see is actually changes to the indexation. So we've seen that OMERS, I think you know OMERS, right? It's a big pension plan.

So they recently did that. So they switched over to conditional indexing. But the good news, I know we have some people that are part of OMERS pension plan that are listening. So the good news is that the service that you acquired before the change will still be fully indexed. It's just going forward. It's the new service, and that's typically how they'll do it. It's just going forward. OMERS will do conditional indexing. They haven't specified yet exactly. I think it'll be in 2023. That takes effect. They'll provide more details. I know about it because my spouse is part, my wife is part of Omer's pension plan. So I'm aware of their pension plan.

But that's typically the ways that they'll look at funding the plan. And that's why if you're part of a defined benefit plan that's very generous, that's why you most likely are paying 10, 11, 12, 13%, 14% of your salary towards a pension plan. Right. Let's have a quick conversation then about if you don't have one. Because if you don't have one and you don't have a pension, I think that there's been this kind of like mysterious stress about not having one. mysterious stress about not having one. And I guess my point to that is if you don't have one, you're listening to this and going, no, I don't pension, I'm screwed. You're absolutely not. And the reason that you might listen to this podcast is because you can achieve outstanding wealth by consistently dollar cost averaging into an investment portfolio outside of a pension. Like a self-directed investment account over time can compound to a wonderful amount,

a wonderful sum of money and generate extreme wealth. So do you want to just have a quick chat about that too? Because you don't need a pension, I guess is what I'm trying to say. If you have one, that's great, but you don't have to stress out if you're listening to this and don't have one. Yeah, no. And I think that's a great point. First of all, you know, if you do have a very good pension plan, that's great, but it's also not everything. So I see that's a common mistake is people think they have a pension and then they're set for retirement. Oftentimes when they start looking at the actual numbers, they realize that the pension plan alone will not meet their

requirements, their income requirements at retirement. So that's something really important because I see this a lot for people just thinking, oh, I have a pension plan. I'm fine. You might be, but you know, you might not as well. But if you don't have a pension plan, that's okay. You know, there's RSPs that you can take advantage of. there's RSPs that you can take advantage of. There's a TFSA you can take advantage of. You have a lot more flexibility with those type of accounts. Of course, you don't have the bonus of having a pension plan where the employer also contributes to it, but that's okay. You can still have very good returns over time. My best tip for anyone who does not have a pension plan is just make it systematic. Make it as if you're managing your own little pension plan.

I think that's the best thing, right? Have those automatic transfers. Because you're going to be forced to consistently dollar cost average. Exactly. Make it a rule. Make it so you don't even have to think about it. It gets automatically transferred to, you know, an RSP or TFSA or half and half, however you want to do it on each time you get paid, whether it's through an employer, whether you're on your own, doesn't matter. But I think consistency here is key, not panicking. And of course, by doing so on your own, you do have, like we mentioned all the time, you have more flexibility, right? You don't have that obligation of having part of it in fixed

income if you're 30, 40 years away from retirement. So it's really nothing to panic about. But I would say your biggest tool here will be discipline and make it as seamless as possible. Make it so you don't even have to think about it. Right. Because they're overrated in a small sense around this because it kind of like secures your financial future. And that may be only true. Well, yes, there's tons of benefits like you just mentioned to the pension. However, that forced savings is what actually is helping people. You mentioned contributing double digit 10 to 12, 14% even sometimes to your pension automatically by being an employee there and that kind of forced savings. Now, if you can save and invest 10% to 20% like that and invest it in a passive index ETF

strategy or buying and holding wonderful companies for the long term, you might actually compound at an extremely wonderful rate long term. And so that's why I just wanted to bring that up because, dude, when I left my nice, cushy gov job making good money, people looked at me like, oh, you're saying bye to the pension? They looked at me like I was making a like, oh, no, I'll be fine. What I thought to myself is you don't recognize potentially that I could be compounding my money elsewhere. It is significantly, based on my track record, better rate. And so that's kind of what I wanted to point out is it's not everything and you don't need one. So don't stress out if you don't have one. Yeah. And it's also added flexibility, right? So if you don't have a pension plan, we're talking about investments like inequities here quite a bit, but we've talked at length how not great we are at home repairs, for example, but

maybe you are, and maybe this gives you the flexibility to be able and go and purchase an income property where you can really get some good return on investment because you'll be doing most of the repairs. You'll be getting income from your rental income. So really not having a pension plan. Yes, you're not getting that employer contributions, but you do have the additional flexibility. And there is something to say about having that flexibility because it just opens a whole new set of investments for you. And like I mentioned, another episode, I'll be talking about the fine contribution pension, and I'll be talking about how different that is from an RSP. And you'll see

there are some positive of a DC pension compared to an RSP, but there are some downsides as well. compared to an RSP, but there are some downsides as well. That's right. There are pros and cons to many of these vehicles. And same goes with registered vehicles as well. There's pros and cons to each one. You have to figure out what makes sense for your situation. You touched on flexibility. I believe that is a huge variable that cannot be measured, but is very important. And those are the things that are really difficult to assign a criteria on how to value them because they're impossible to actually quantify. However, you and I both know that that flexibility in your life makes a lot of difference sometimes. All right, guys, thank you so much for listening.

This has been our first recording after a long break. I'm feeling very refreshed. So I don't know if I told you, but I think I mentioned before is that I was going like completely dark on all socials and stuff. I cheated a couple of times, man. I looked at Twitter like twice bored on Christmas day or something. And my girlfriend called me out on it. And then I was like, crap. Like I, dude, I'm an addict. I mean, I went to the web application. I deleted them off my phone. I said I was having like a full cleanse from all the crap on my phone. And so I deleted all the apps to be, I still don't I've still haven't downloaded any of them. But dude, my addict brain was going on the web applications on Christmas Day, I caught myself and I was like, Okay, no more, I got to actually do this. And man, the results were great.

Like I feel so much better. Yeah, I mean, I went a little bit here and there but very seldomly i would say i know you know some people were tweeting at me and so on i mean i may have liked a few tweets and stuff like that but did not go all that much i think it was a bit like you just trying to disconnect as much as i i could um played some nintendo switch oh yeah like smash bros or mario kart we got mario kart and one like mario 3d or something like that nice but yeah it's fun my wife likes doing playing with me so it's it's kind of fun and you know playing online and getting destroyed it's always fun yeah dude you go online for some of these kind of legacy games, people that have been like perfecting Smash Bros and perfecting Mario Kart for the last like 30 years,

and you just get absolutely demolished. And I thought I was good at a lot of these games. And the reality is that you're not because there's someone way better than you at them. Oh, yeah. But I still had fun. Oh, yeah. It's all about the fun.

All right. Thanks, guys. I hope everyone had a great holidays. We back we're back for 2022 and if you could share the podcast with a friend or leave us a rating spotify now has ratings it really helps us apple podcast has always had ratings whatever podcast player you're doing, if you rate, share the show, it helps us. Like 2022, Simon, we have a goal of doubling or one and a half X-ing our listenership. It's totally doable, but it has to be supported by the people who listen to this show. And I know that we did over a million downloads last year, Simon, over a million. I think we had over a million in the third quarter. I think we can hit 2 million

this year, but we do need your guys' support. So share the show if you've got a lot of value from it over the past year and a half or however long you've been listening. Maybe someone else in your life may as well. So we appreciate you very much. We'll see you in a few days. Take care. Bye-bye. The Canadian Investor Podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.