The Canadian Investor - 4 Secular Trends for the Next Decade

Episode Date: November 7, 2022

Wondering what the big secular trends of the 2020’s will be? In this episode we talk about 4 secular trends that we think will have massive tailwinds until the end of this decade We also discuss stocks that could benefit from these secular trends. We finish the show by discussing a listener question on Canadian Depositary Receipts (CDR).  Tickers of stocks discussed: BNY, TXN, NVDA, AMD, INTC, ASML, TSM, QCOM, GOOG, MSFT, AMZN, CRWD, HACK, AVGO, LRCX Shakepay Bitcoin Survey Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Sign up to Stratosphere for free 🚀 our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is

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How are you doing, buddy? Yeah, not bad. I'm bad. Yeah, I think, what did I answer? I'm like, oh my God, you're sick again. Yeah, you're like, is this the third time you've had it? No, no, not third. I don't even know what I got, but it's not pleasant. Anyways, today, you know, the show goes on. The people need the show and the show goes on. So today we are talking some secular trends for the decade, for the rest of the 2020s and probably beyond things that are important to pay attention to in terms of big secular trends and trying to understand the businesses that are behind them

and the businesses that will be created behind these trends. And then you are going to round out the show talking CDRs. I mean, we've had the Neo Exchange on the show before to talk about the CDRs and we get questions about them all the time. Should I buy the CDR? Should I buy US stocks directly? How should I think about currency? Those kinds of things Canadian investors want to know. So you're going to take that segment at the end. How are you feeling about these trends? Do you think that we're still caught up in 2021 with the hype trend here or is this the real deal? Yeah, I feel like I'm reading Cathie Wood big five trends. Big five trends for 2022.

And then you look at the chart and it's down like 80%. Okay. And it kind of goes with what we were talking, you know, last episode about growth at all costs, but not being profitable. We're seeing what happens right now. But no, I think these are pretty good trends. We had a couple more, but just to keep it time-wise, we just did two each. And I think they're pretty reasonable if you ask me. Oh, they're very reasonable. And I think that we've done a decent job of keeping it reasonable and setting expectations. And I think that that's

a good place to start, which is there has been a regime change that I hinted at quite extensively on the recording for the latest earnings that went out on Thursday. I talked about that probably, I don't know, 75% of the episode, which is there is a regime shift from growth at any cost to, oh yeah, profitability matters. Valuation always mattered, but profitability certainly needs to matter. And these companies that have promised big profits in the future on the back of more growth will unlock operating leverage. Some of these business models, the reality is that either they can't or management won't. And so seemingly, where does that operating leverage kick in?

And it's a buzzword I throw around so much. I throw it around now. I throw it around now, I'm throwing it around last episode. For those who don't know what it means, it just means as you continue to grow and you have something like a technology product, you don't have huge variable costs. And so as you keep growing, there's a bigger gap between you keep growing and your fixed costs stay relatively the same. And so your cost structure is growing a lot slower than your top line growth. And that produces a wider, wider gap of profits. So that's the idea of operating leverage, if you can visually picture that.

Look at what Airbnb did. I don't know if you looked at their report. I think it was yesterday at the close. They said, all right, we're going profitable, perhaps at the expense of their value proposition. They produced gap net income, gap net income, not even adjusted net income of 1.2 billion on their earnings last night and almost a billion in free cashflow, clamp down expenses, change the pricing, make money. We've graduated from Y Combinator and Silicon Valley, and we're not run by venture capitalists who don't give a shit about profit anymore. This is the public markets, baby. And so even if there is a regime shift, I'm prefacing this with, there is a healthy regime shift, and we need to get out of a growth bubble. But we do need to see these businesses actually sustain themselves with healthy,

free cashflow generation, but we still need growth. And if investors pivot aggressively to value stocks that don't actually grow, because that is a sector with momentum right now, then let them, right? Let them do that. At the end of the day, we're not cigar butt investors and growth does matter. And return decomposition over the long haul happens from top line revenue growth. This is not my opinion. This is factual statistical return decomposition. The top line revenue growth matters the most over a long time period. So growth matters, valuation matters,

profit matters. And so today we're going to talk more big picture about those growth trends and some businesses that may fit all three of those categories. Is that fair? And also I'm going to bump you, I'm going to swap our order here because I want you to go first before I have to be very sick. Yeah. And the last thing I'll probably add here, I think for the operating leverage, I think what's putting a bit of a wrench for a lot of these SaaS businesses into their business plans of becoming profitable and using that operating leverage is we're seeing with inflation, that's been obviously everyone knows it's been high, but these businesses are feeling it because those fixed costs that they have, they've actually not been quite that fixed in the past year or so. Yeah, exactly. That plays a big role in it.

Yeah, exactly. So maybe in past years when inflation was what, around 2%, maybe it was true. But I think we're seeing that a lot of these quote unquote fixed expenses are not that fixed right now. So I think, yeah, I just wanted to add that to what you were saying. Especially when you keep hiring so aggressively too, right? Like the idea of operating leverage includes human resources. And I think that we've gotten a little out of control.

And look, I'm not trying to be the guy taking people out of jobs. I'm trying to get these businesses to create a sustainable free cash flow generation so they can be around for a long time and people have good jobs for a long time. Yeah, exactly. And people have to put things into context, right? We don't want people to lose their jobs. But at the same time, if a business is not profitable, eventually, you know, the business may go under. So is it better off that people it stays bloated with too many employees that are not necessarily productive? You're oftentimes just delaying things for potentially a worse outcome. So I think it's

just important for people, you know, just remember that as well. Yeah. Like if an employer tells me, you know, profit doesn't matter, our culture matters more. I'm like, ding, ding, ding, red flag. There's no culture if I don't have a job here anymore in the future. Right. And so it's, yeah, I think that this regime shift, dude, this is just markets, right? There is a healthy correction to the current thing that has gotten too out of whack. And I think that that's normal.

Yeah, now I'll go for my first big trend. I'll just say for the next decade, I know we said the 2020s, but let's just say the next decade, give ourselves a couple more years. Till exactly 2032. Exactly. So the first one, it may be weird, but may not surprise people at the same time.

So semiconductors or like, you know, we've talked a lot about chips recently. I talked about ASML not too long ago, a couple episodes back. Now, the reason why semiconductors may be counterintuitive here is because semiconductors have seen incredible growth since, even if you look back to the 1980s, they've been growing, you know, about six, seven times since then, in terms of on an inflation adjusted basis since the late 1980s. So they've had tremendous growth since then. Now, it's easy to think that all the growth is done, but I would respectfully disagree with that. An easy example and people will see is that Braden Secular Trans, just spoiler alert here, they do require extensive usage of semiconductors. So these chips are in almost everything we use nowadays,

which means the demand will just keep growing. Yep. What are you filling those servers with, right? Exactly. I mean, everything we have, right? If you look at cars in the 1980s, for example, I think in the 1990s, they started integrating chips more and more. But nowadays, I mean, we saw it with the pandemic. You know, Ford, GM, all the big car manufacturers said they were ready to ship out cars, but they were waiting on one part or not more than one part, but usually they were waiting on semiconductors, which they needed to finish the vehicle. Yeah. And I think like, if you look to even at the multiples, it feels like semis are trading, like their cycles up because they are cyclical and they've

historically thought of as being very cyclical. However, the difference has changed drastically, and I think people should be attuned to it, which is the secular trends that are important in digitization for the next decade need more and more computing power from semis. The reason that I think they've come down so much is the geopolitical, how fragile the freaking supply chain is. It's so fragile. And so you and I both know it's been a theme of the podcast now for probably what, four or five episodes now, which is it's so fragile that the West, one of their should be, one of their most important investments over the next 10 years is on foundry capacity in the West because it's too damn fragile in its current state. Yeah. No, exactly. And I've actually been

listening to an audio book called Chip Wars. And it's funny because we're kind of re-seeing a bit what happened in the 1970s and 1980s. The only difference back then it was between Japan and the US. And a lot of that capacity went to Japan. I'm not through the book like right now. I haven't been done. But it's kind of interesting to see some of the similarities that was happening back then to what's happening today. So maybe at some point I can do a bit overview of the actual book and give people a better history of the whole semiconductor industry. But is it this one? Is it this one? Chip war, the fight for the world's most critical technology? Is that one? Yeah. Okay. That's the one. Cool. Because I know people when we drop books, they want to know. Yeah. Very, very interesting book. Yeah, it's available audiobook or, you know,

obviously, if you're looking to read it is also available. Now, you know, just to add on to that, like you were saying, I think we're seeing right now governments invest more and more in this industry. And for national security reason, but also economic independence, because we saw the supply chain issues, like you mentioned, in the last couple of years, how much they were impacted by COVID. Now, from the projections I've seen, so I did a bit of research. Most sources will project an increase of high single digit to mid-teens in terms of semiconductor sales for the rest of this decade.

So obviously, that's a pretty wide range. But I think you can make a case either way, just because everything we kind of use now has a chip in it, it may not be a top end chip, it may be an older version of chips. But most of the things do I mean, your refrigerator, your you know, your appliances, they have them too obviously our phones like pretty much anything you can think of the headphones i have on have them my airpods have them too so pretty much pretty soon you physically are gonna have them buddy probably and here i'll just finish with you wouldn't be doing this podcast you're just gonna set like i'm gonna be you're gonna write some AI script that just reads through the hundreds of hours of podcast material that you have said, and then just spit out

like some really cool facts. That's what it's going to do. It could be. And for people who are looking for names here, some names will be familiar. There are some that people might not be familiar with, but definitely do your research for these. But some plays NVIDIA, AMD, if you're looking really at advanced chip design. So these are chip designers.

They won't produce the actual chips. Typically, it will be produced, well, especially those two by Taiwan Semiconductor, which is TSM, the ticker. There's Intel, INTC. Intel's a bit in a kind of transition phase right now. So it may be it's more of a value play in my view, whether you're betting on a turnaround or not. ASML, the name we've talked about recently, if you're betting on, you know, a monopoly in terms of EUV, so making the machines that will actually produce these chips. Texas Instrument, ticker TI in the US, they are the top producers

in analog semiconductors. So those are used kind of for real world uses, if you'd like. Samsung, one of the biggest producers in the world, more of an integrated company, as people may be aware of here. And Qualcomm's another name. There are some other names here, but these are just some of the names that came to mind. Just as you were saying that Texas Instruments, I think is TXN. That is the ticker, not TR. I saw it. Oh, okay.

Yeah. My bad. Just if people are looking it up. It was too easy. Yeah. Ticker, TI. I will add the tickers. So I do look them up when I put the tickers in the show notes.

So my apologies. Yeah, you're probably right. No, it's okay. That's a good call out too, which is you put the ticker of every stock we talk about i mean with almost complete accuracy you know if we just throw in some random ticker mid-convo maybe not but you and i talk every company we're planning on talking about goes in the show notes so if you're ever wondering about that head to the show notes it's on your podcast player you just click to, see more depending on which player you're on and you'll get all that good stuff. And especially when I

call out a link that's like kind of relevant to like some guide or whatever else. So the show notes highly underutilized head to the show notes. No, see, well, I think this is good, right? Like, and there are so many other players in here, like whether it's like Lamb Research or, you know, Broadcom, like some of the testing companies, you know, you've talked extensively about ASML and the lithography. There's so many players that are in this very complex, highly, highly complex supply chain is probably the understatement of the year. And there's a couple bottlenecks in there, which I find extremely interesting. And that's been the talk of the town lately, which is it's so fragile when one company makes all of thing X, which is required in the outcome of making semis globally. And I'm sure that book talks a lot about that. Yeah. Yeah. I'm not there yet. I'm still in the, I'm in the late 1980s. Okay. I think I'm four hours in, four hours in, eight hours left, but it's really,

it's super fascinating. I mean, whenever, you know, I listened to other podcasts, but whenever there's not like an episode that really interests me, I'll just kind of put that audio book. It's been a week and I've already listened to more than four hours. Nice, nice. You need to learn something while you're... That's why people love podcasts, right? 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,

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haven't checked out their listings, I highly recommend it. I bet you'll be as pleasantly surprised as I was that BMO, the Canadian bank is delivering these amazing ETF products. Please check out the link in the description of today's episode for full disclaimers and more information. I sound okay. Usually when I'm banged up on the pod, I sound like I smoked 400 packs of darts, but no, this is internal right now into the system. I'll start with a pretty obvious one, which is cybersecurity. Now, the global cybersecurity market today is valued at around USD $185 billion in 2021, based on the report I looked at, and that's globally, and is expected to expand at a compound annual growth rate of about 12% from 2022 to 2030. And so these CAGRs are important,

and of course, they're estimates. Of course, they're estimates. They're always going to be estimates, whether it comes in somewhere much higher or much lower than that. I think that it's useful context in terms of, as an investor, this piece of a pie, which is cybersecurity, is going to keep growing. Now, who's the horse to bet on, right? Who's the horse to bet on with that growing pie? And does the price make sense? So today, large corporations have so many systems, there's so many devices as well, like hardware, you know, there's the bring your own device trend as well to for large corporations. And so they have all of these complicated communication channels, applications, cloud hardware, I just talked about intermixing with personal as well. In some cases with bring your own device, there's complex endpoints, even like on-premise type stuff. And they need comprehensive protection is the bottom line, right?

And I'm trying to find this report for the life of me, but I don't have time to scour the internet right now. But the report basically showed IT spending and how serving all of these CIOs or like CTOs, like the people who run the IT departments and giving them all these categories on if their budget is increasing or decreasing over the next 12 months. And I think this came out in Q2. And so you saw some really cautious spending from these departments. You saw negative year over year growth on a ton of categories that were previously up a lot, right? In spending. But you know what was still double digit across growing ads, growing spend and budgets is prioritizing cybersecurity. Almost across the board on these large corporations, it stuck out as the one line item that large companies just can't afford to curtail

spending on, right? Like it's too risky to curtail spending on such an important class with their budget. So it's like how much of values now digital assets for businesses, like it's a gigantic amount of it and they can't afford to not have the best security for the assets. And if you have a billion dollars in a gold vault to my house, like I'm going to have the toughest, baddest Navy SEALs, the best equipment and the best technology, because I can't afford not to with how increasing cyber threats are. It's only going to increase. That's the whole point of today's show. From an idea perspective, the name I find the most interesting and is probably the most well-known, so nothing earth shattering here, is CrowdStrike, ticker CRWD. This is a pure play on cyber.

There are, of course, other players and cyber, there's other players, but my main thesis here is network effects in cyber is so important. And people do not think of this. They think of network effects with TikTok and Instagram and Snapchat, where you need a lot of users to make the platform useful. And that's basically what network effects are. With cyber, if you have more endpoints being monitored, more customers on your platform, it actually increases the effectiveness of threat detection because this program is learning over time about threats.

And as soon as a threat comes in and is detected and mitigated, it lets the entire network know, look out for this. So it's kind of like a, it's virus protection. Like think of your body, right? If you have already handled some virus, your body has the antibodies to deal with that virus. Exact same in cyber. It seems crazy, but that's how this works. So I think network effects are really important. I think that's why CrowdStrike could run away with it. If you look here on financials on stratosphere.io, you have the KPIs for CrowdStrike. Subscription customers since 2017 have gone from 450 to almost 20,000. Annual recurring revenue has gone from 58 million to 2.1 billion in recurring revenue on those customers. And so again, this is what I'm talking

about by having that base. It's sticky as hell. Like I can't think of a stickier SaaS than cybersecurity. I'll round this out with another non-peer play is a company we all know named Microsoft. They are a beast in cyber and really don't get a whole lot of credit for it, to be honest. Yeah. No, I think that's a really good point. I mean, obviously cybersecurity is super important because, you know, it could be whether you're protecting your intellectual property against competitors or state actors that are trying to act. It's so important. I think one good alternative, which would probably be my way of doing it, would probably just look for an ETF that just tracks cybersecurity because you'll have CrowdStrike

as one of the top holdings anyways. And then you kind of spread out just because I don't know that space all too well. Or you kind of do a basket approach and you pick like four or five top names and you kind of roll with them. Yeah. I think what's the most popular one? It's I think Hack or CIPR. There's a bunch and they probably hold the exact

same stuff there's a bunch i found one that's like bug like that's the actual ticker which i think is pretty clever yeah yeah that one has yeah crowd strike like the first six seven names are pretty heavily weighted and then it drops down pretty quickly yeah no i'm trying to find the the holdings top holdings infosys crowdstrike cisco broadcom palo alto cyber arc z scaler which is an interesting one z scaler fortinet fortinet not fortnite yeah and yeah there's a bunch of other ones that i do not know what these are so i'm not going to embarrass myself here on the pod yeah but i mean i think those i think team etfs are great for something like that right it's a sector you want more exposure to but you're not necessarily an expert as long as the fees are reasonable exactly i'm not

paying over at the most 60 basis points which actually this one is exactly that yeah the thematic cts are always higher because they are actively managed for the most part. So you'll usually find them between like 40 basis points to like 65, 70 in that range. So just for people like, don't be surprised, like you're not going to find like a five basis point. That's not going to happen for these. Yeah. And just for, to remove the jargon, that means when you look at the management expense ratio, 0.6% management fee. For me, that's like the most I'll ever pay

on a thematic ETF. And I don't even invest in thematic ETFs. That's just how I would think about it. No, that's a good point. I don't usually do, but I think it's a good option if you don't necessarily, you know, you want exposure, but you don't want to put too much work into it. As long as the fees are reasonable. I think that's the main thing. Yeah. Cause I mean, most of us with semis and cyber are like, dude, I'm a carpenter, man. I'm not going to know what this is. Like, I'm not going to know crowd strikes better than Z scaler and ASML is better than, you know. And so I think that that's a very fair take. And I think that people who recognize what their strengths are will ultimately be very

good investors. And so I think you bring up a good point. ETF is a solid play. Yeah, because I'll just kind of go back to semiconductors. Like I've probably put over 30 hours now in the past month learning about it. And I feel like I just probably know five or 10% about like how the whole thing works. So I know how that works. You feel like, you know, less, right? Because then you've learned that, you know, nothing. Yeah, I mean, I find it super fascinating. So that's why I to me, it's worth continuing to learn. But I don't know if I would have the same drive to learn cybersecurity just because I find semiconductors and the whole geopolitical aspect behind it so fascinating. It's just so

that's a personal way of viewing it. Maybe someone else is, you know, maybe someone's a programmer and they just want to keep digging into it. It makes more sense for them. But for people who probably don't want to put that amount of time, thematic ETFs are not a bad idea. Okay. So now moving on to the next one before Braden passes out. For those who can't see me, I'm not usually this pale. It looks like me in the middle of February, not off the summer glow. Oh boy. No, boy. So the next one is cryptocurrencies led by institution. And this one will be led by ShakePay, obviously, our sponsor, sponsor of this show. Now, the first thing I wanted to talk about, because we do hear that term institution thrown a lot, whether we're talking about BlackRock, or even a Vanguard Vanguard or these other type of asset manager,

you know, people talk or you go on CNBC, they talk about institution, but what the hell does that mean? Well, an institutional investor is a company or organization that invests money on behalf of other people. Examples of this are mutual fund, pension, insurance company, publicly traded companies, hedge funds, etc. So there's a lot. These are just entities that invest large sums of money. I think that's probably the easiest way to put it for people. Now, before I get started, I know someone will probably say, well, that's what people were saying during the bull market, the crypto bull market, but also obviously the stock bull market, which was happening at the same time, that institutions would just keep pouring money and the price of Bitcoin and cryptocurrencies would just keep on getting higher and higher. The thing is, only a few institutions like Tesla, MicroStrategy are probably the two main ones that

people know that actually put a lot of Bitcoin on their balance sheet. But also ETFs and hedge funds put money into cryptocurrencies. But there's not a lot of institutions that did during the most recent bull market. And prior to that, it was almost non-existent. Now, I do agree that in hindsight, the institutional narrative was probably overblown. But I would argue that it was because institutions had limited tools to allocate investment into cryptocurrencies. And I would also argue that many institution leaders needed to learn more on the topic. You don't have to look very far. Even like hearing Jamie Dimon sometimes, I do wonder how much research he

actually has done on the topic. He blasts Bitcoin sometimes, but then on the other hand, JP Morgan is offering more and more tools for some of their clients to invest in cryptocurrency. So that's kind of a funny anecdote or a funny thing that I've seen because he's saying one thing on one end and doing another with JP Morgan. Now, some of the recent news are really interesting. There's been some recent investment and announcement regarding cryptocurrencies that I think in time will lead to more and more institutional investment in the cryptocurrency space. I'll just go over three, but you don't need to look very far. You can just Google it. In the past six months, there's been a lot. Now, just a few days ago, Fidelity Investment Digital Assets Subsidiary announced that their

institutional clients are now able to trade and custody Ether. Ether, for those who are not aware, is the currency of the Ethereum blockchain. Fidelity is one of the largest asset managers in the world. As of June 30th, they had $3.7 trillion in asset under management. I'm going to go and say that it's probably a bit lower right now with the markets being down. But it's still- Sounds like a fair statement. Yeah, it's still one of the top asset managers along Vanguard and BlackRock, of course. And speaking of BlackRock, they announced in August that it was launching a Bitcoin private trust available to U.S. institutional clients.

And then BNY Mellon announced three weeks ago that it was launching Bitcoin and Ethereum custody services for investment firms. Now, for those who are not familiar with BNY Mellon, which is Bank of New York Mellon, it is a global systemically important bank. We talked about that. Every single time, systemically. Yeah. You're going to get it about the same time. Or GSIB. You're going to get it at the same time these secular trends finally come into fruition.

Probably. In about 2032. I'm hopeful. Yeah. So, all that to say, it's a very large bank. It's in the same tier in terms of these G-SIB banks as TD and Royal Bank in Canada. So it's in that lower tier, but it has $1.8 trillion in asset under management as of September 30th. And they also had $40.2 trillion in assets under custody and administration.

Now, if people are not familiar, custody is basically just holding the assets for clients. So, for example, I'm very familiar with pension plans. So usually what you'll have with pension plans, you'll have a pension provider who will manage the pension. But then you'll have a custodian who will have the actual funds for the pension. So, BNY Mellon is actually a major player in that. And that's why it's so significant that they're launching a Bitcoin and Ethereum custody because that's one of their main business segments, if you'd like. Very cool. I mean, this is obviously going to be more important in the future. I mean, whether you're a believer in it or not, a real secular trend that I will say with certainty

is that the digitization of money has been a long-term secular trend. I mean, look at the evaporation and extinction of cash. What's the next level of that? It is probably a completely digital currency. I think it should be Bitcoin. You and I both agree on that. So whether you're a believer in Bitcoin or not, it is really around the fact that there are a lot of problems in the financial system and they poke their head out every once in a while or maybe all the time. And so there's a need for some of the problems that these technologies solve and it's worth having an open mind to them. And there's going to be important businesses, as you point out, including the custodians is a very good idea, that important

businesses are being created and will be created here. Yeah. And the last thing I'll add here is that what's the most fascinating about these announcements is that they are happening despite like us being in the what they call in the crypto world, like crypto winter, which is just a bear market, a pretty severe one, as we've seen. So these large asset managers, you know, there is something there if they are still investing in their crypto offering, despite the market being so depressed, that's because their clients are probably asking for that. So just to keep that in mind would be one thing for them to invest while you're in a full on bull market, it probably

would have fueled the price even more. But when it's a depressed market and you see big names like BlackRock, BNY Mellon, or Fidelity having more options for their institutional clients, I think it'll be definitely, I think, in the next decade, a big trend to keep an eye on. Yeah. And it's not even like, I don't even know if I can give them enough credit as like skating where the puck is going. It's their customers are asking for it. That's why they're building it. Right. Oh yeah. And you know, they're skating to where their customers are asking to spend money with them. Right. And so, yeah, I mean, it's, it's not for no reason.

These companies are not stupid. They would not be doing it if there was zero demand for it. Yeah. Most of these companies are pretty disciplined, right? Like if it's some tech company that already loses money, I don't see that as much signal. But if it's these public companies that are mandated incentive structure by bottom line, then that tells you everything you need to know, right? Like tell me the incentives, I'll show you the outcome type Charlie Munger type situation. So thank you for doing that. outcome type Charlie Munger type situation. So thank you for doing that. That is this week's segment on the future of digital money presented by ShakePay. If you haven't downloaded ShakePay on your phone, it's got some notification. They just launched a new feature about how I can make more money by doing nothing on their platform, which I like to do. I'm a big fan of making money

and doing absolutely nothing. So download ShakePay. I think it's why I don't think so. I'm a big fan of making money and doing absolutely nothing. So download ShakePay. I think it's why I don't think so. I'm quite convinced that it is the easiest way to buy and sell Bitcoin in Canada. And yes, they're a sponsor of the show, but we were using them well before that. So go ahead and download ShakePay and use ShakePay. What is it? ShakePay.me forward slash R forward slash TCI, right? You got it.

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. Questrade.com. So not so long ago, self-directed investors caught wind of the power of low-cost index investing. Once just a secret for the personal finance gurus is now common knowledge for Canadians, and we are better for it. When BMO ETFs reached out to work with the podcast, I honestly was not prepared for what I was about to see because the lineup of ETFs has everything I was looking for. Low fees, an incredibly robust suite, and truly something for every investor. And here we are with this iconic Canadian brand in the asset management world, while folks online are regularly discussing and buying ETF tickers from asset managers in the US. Let's just look at ZEQT, for example, the BMO All Equity ETF. One single ETF, you get globally

diversified equities. So easy way for Canadians to get global stock exposure with one ticker. Keeps it simple, yet incredibly low cost and effective. Very impressed with what BMO has built in their ETF business. And if you are an index investor and haven't checked out their listings, I highly recommend it. I bet you'll be as pleasantly surprised as I was that BMO, the Canadian bank is delivering these amazing ETF products. Please check out the link in the description of today's episode for full disclaimers and more information. Now we'll move on to your next secular trend with surprise, surprise uses semiconductors. Yes, they certainly do. The demand, I mean,

that's driven so much of the results from AMD and NVIDIA is the need for more computing power and their data center business. And, you know, data, data centers, those all fit into a secular trend that I'm very much a big believer in. You know, you and I both own Equinix. It's one of your largest positions, if I'm not wrong, I think it is. Yeah. Yeah. It's up there. I think it's top five if I, definitely top five if I exclude the index ones. Yeah. Today, I'm talking about Equinix's customers, which are the big cloud computing giants. I know I've talked about them countless, countless times on the show, and I'm going to do more of it

because it boggles my mind that this segment, as huge as it is today and how huge it's going to continue to be, is dominated by businesses that were already giant. They were already gigantic and they spun these very important businesses out of them. And that is the kind of business that has optionality that you and I both appreciate quite a bit. So let's rewind to the early 2000s. And amazon.com was experimenting with something called merchant.com, which was Amazon's e-commerce as a service platform for third-party sellers to build their own web stores. Like the Wix's and Squarespace's of today, right? That was going to be a new thing for them. And they went down the rabbit hole of pursuing service oriented architecture. I don't even know what that means as a means to scale their engineering operations. And they ultimately

needed infrastructure and cloud computing, more computing on the cloud to serve their needs of building amazon.com into a global powerhouse. And so now today, that spinoff, well, it's still part of Amazon, but that business today is an $82 billion per year in sales business and drives most of the gross profit for amazon.com, the stock. Today, if you look at the run rates, Microsoft Cloud's at $102 billion a year in sales, GCP, Google's platform's at $ 102 billion a year in sales gcp google's platforms at 27 and a half billion in sales per year look at this sexy little graph i have here from stratosphere.io that shows commercial cloud it shows them side by side over time and this is going to be available on the new platform on november 28th is that the

tuesday hold on i should probably know this that is the 29th november 29th people mark it down your calendars november 29th not the 28th i only should know that number very well it's okay it's not the first one today they're having trouble with uh i'm like trying to say the url like such an easy thing. I'm like shakepay.me. Okay. So yeah, you can see here side by side how it's grown and it's beautiful, man. They just keep growing year after year and cloud computing is going to continue to be important and there's lots of room for growth, right? There's still so much workloads being done on premise. And so there's going to be a increased push for public cloud usage,

which we've already seen, and a combination, which we'll see a lot for these huge corporations, a hybrid cloud, which is a mix of on premise and public cloud usage, using all the computing power that sit in these gigantic warehouses all over the world. And so, oh, here comes the runny nose. Oh, we're at the stage. Here we go. I mean, I'll just round this out with it's obviously already huge. Those numbers are gigantic. Microsoft's intelligentigent Cloud is over $100 billion in sales business, but it has been consistently hitting almost 40% year-over-year revenue growth and very steady, like not wavering off that. And that's already off its growing base. So if you have that sustained like 30% to 40% year-over-year growth, dude, the compounding,

like just do the math. That's how we've got to 100 billion so quick, right? And I don't see it dipping to single digits anytime soon, right? And so, you know, it's very easy to invest in these. You just buy the three or four largest companies in the world. Yeah, which are not on discount, but definitely going down today pretty heavily with the news of the Fed. It's been a roller coaster ride.

Are we getting that news right now? Oh, it's, I mean, I haven't had the chance. So maybe, I know kind of, you know, they just did 75 basis points, like people expected. But the speech, it sounded like from what I saw just before we started recording that the speech was saying that they were kind of, they were going to do a few more rate hikes, but slowing down. And then they mentioned apparently in the speech that they want to see basically the lag effect on those rate hikes that they did because they're acknowledging, and I'm sure they knew this a long time ago, that it takes

time for interest rate hikes to actually impact the economy. So I think they're acknowledging, and I'm sure they knew this a long time ago, that it takes time for interest rate hikes to actually impact the economy. So I think they're probably going to keep it fairly high for a while and give time for the economy to show what impact it's actually having on it. Yeah. So here's the breaking news. US Fed raises interest rates 75 basis points, but hints a slowdown. That's the headline. So the markets were up, switched from being down to up, I think within 20 minutes of the announcement, and now they're sharply down. So half an hour later, 45 minutes, they're like bleeding like there's no tomorrow, especially growth stocks.

So yeah, I mean, Fed Day, right? It's always, I think I tweeted something a bit earlier. You just kind of sit back as a long-term investor with your popcorn and you just look at the market and just enjoy the ride. It's, everyone has no idea what they're doing. So just stick with what matters over time, hold great businesses or buy the index very consistently with that hard-earned money, and you'll turn out in a very good spot. I am very confident in that. That's why you listen to the podcast. There's a whole lot of news in between, a lot of noise, a lot of volatility. That's the name of the game. But look at that. Look at the volatility. Yeah. We're sharply down, sharply up and sharply down again. No one has a single clue what's going on. Yeah. The swings when there's a Fed announcement, it's crazy. One thing's for sure,

the markets are going to swing, but you never know exactly how. That's probably the one thing you can predict, any type of Fed announcement. And it's just Algo's moving it, right? Like it's just computers moving it. It has nothing, like it's not a person moving all those shares. Yeah, I think it's probably a mix. Well, I mean, sorry, I'm oversimplifying it. There's a lot of move from Algo though.

Yeah, there are. And I think there's also people trying to analyze you know fed speak which is always kind of trying to decipher what they're saying so that always happens even with the bank of canada right we see it but it doesn't have as much power as the fed has on the global financial markets but no tech stocks are definitely reeling right now i think a lot of good companies are down you know know, 3, 4, 5, 6, 7%. And speaking of tech stocks, should you buy CDRs, which are Canadian deposit receipts, which a lot of them are actually US tech stocks or the US stock directly? So that's a question

we've been getting a lot. We've talked about it a couple times, but it's been a year and there's more names available now for people who are interested in these CDRs. I think for me, there's three main things and feel free to interject, Brayden, in between blowing your nose or not. I'm only on inning one of how I'm going to feel tonight. of how I'm going to feel tonight. Yeah. So the first one is my point is basically, yes, there are fees. So CIBC is the one who has these products or traded on the NEO exchange. But CIBC says on its Investor Edge page that there are no ongoing management fees.

And Investor Edge is just a self-directed trading platform. That's not incorrect per se if you take it at the letter of the word, but it is misleading. Because if you dig a little bit on the CIBC website, you'll end up finding a brochure. And I'll definitely add it to the show note here. And CIBC states that they take a spread on currency hedging. So this is straight out from their brochure. The notional forward rate used for each notional currency hedge will on average not include a spread of greater than 60 basis points on an annualized basis. However, further down in that same brochure, they say that it could sometimes be larger because they can't control everything.

So there are fees. Like, let's be honest, a spread is a fee that they're taking. If not, they probably would not be offering that product. So there are fees that you're paying for this hedging service. Anything you want to add here before I move to my second point? No, I think that that's a good explanation. I mean, there are fees, but with anything that's a product, you have to decide if you're willing to pay for it. And sometimes the answer is yes. Yeah, exactly. And I'll finish by saying who I think these are a pretty good fit for.

Now, the second thing to consider is liquidity. So, for example, the NIO exchange Amazons, which has an average of 130,000 volume every day, whereas actual Amazon shares, the ones that are traded in the US, have on average 60 million in average volume. So that's a massive difference. And 130,000, although it sounds like a lot, it's not a large amount of shares that are being traded. So it could result first in price discrepancies between those new exchange shares and the actual shares that are traded in the U.S. And it could also for those who are higher net worth, for example, who place large orders, it could impact the price on the new exchange. So the liquidity is definitely a bit of a downside here for new exchange shares.

It's something to consider. What did you say the volume was? I wouldn't say it's a liquid. Yeah. It's 130K. Yeah, it's enough volume. It is enough. But again, if there's a massive sell off or something like that, you know, it's not a lot when you think about it.

There could be sometimes a bit like weird things happening. It's not nothing, but it's also not even close to what the actual shares are trading in terms of volume. Oh, yeah. Well, I mean, they're depository receipts for mega caps and large caps, right? So I'm not surprised by that. Yeah. Okay. And so you got a third one here, which I think is probably one of the most important. I don't know. One of them for sure. I think so. So currency hedging. So currency hedging, basically, for those who are not aware of what it is, it's basically buying contracts. So the currency is basically you're not affected by any currency fluctuation. So I always come back to this easy example. I know a lot of people are familiar, obviously, with hockey in Canada, the NHL.

So people sometimes don't realize that NHL teams get most of their revenues in Canadian dollars, but they end up paying their players in US dollar. So to minimize the volatility and be able to plan their budgets better, what they'll do is they'll actually currency hedge the Canadian dollar to the USD. So they'll have fixed rates of exchange rates for a certain period of time. So it's the same thing here that CIBC does for these Canadian depository receipts. So you can make a case here that it could be good or bad. You can probably take either side of the coin because you're not as dependent if the US dollar, for example, loses strength versus the Canadian dollar. But again, if the US dollar gains strength against

the Canadian dollar, you'll end up losing out. So that's why personally, I prefer the non-hedge version of any Canadian listed security that tracks a US stock because I want as much exposure to USD as possible. CIBC makes the point that you're removing that risk, but in my mind, you could say that it's a greater risk to have less exposure to US dollar. My final opinion here is pretty simple. I think the CDRs are a good option for those who can't afford the actual US shares and don't have access to fractional shares. An example here, if you look at Microsoft on NeoExchange, it's $17 Canadian, whereas a US version is $224. So if you're someone who's not necessarily maybe younger, not saving all that much per month, say you're just saving $100, which is great.

You know, everyone has to start somewhere. Well, it's going to take you a while just to get even one share of Microsoft. So if you buy them on Neo Exchange at that $17 or whatever the price is at the time, you'll be able to DCA pretty much on a monthly basis, obviously, depending on what fees you're paying with your online broker. So, you know, you have to keep that in mind as well. But that is a good option. And the last thing I would add is if someone is really keen on having, you know, an hedge version of these stocks, then obviously, clearly, the NEO exchange is a good option. And obviously, clearly, the NIO exchange is a good option. It provides a very needed situation which you described around the price and the barrier to entry to own the shares.

And I think that that's probably the most important benefit. If you can buy the shares outright, that's what I would do. And that's what you and I do. But if you can't, then seems like a decent option. I think that the prices, like the fees are reasonable. I mean, the fees I like to pay is zero. But, you know, that's not how the world works. So if it's serving a purpose for you, then the world's your oyster.

Yeah. And probably I would say the biggest thing that plays against the CDRs that happened in the last six months is a lot of the big tech that were trading in the four digits in USD did a stock split. So they are a lot more affordable than they used to. Again, they're still non-silly achievable for everyone. But you're looking at Google, what, at $88 a share now compared to what it was to $2,000 before the split or whatever it was. So it's definitely, you know, it's still, there's still a lot of value for some stocks, but for me, especially those big tech that now have, you know, share prices and less than $100 each, I think it's harder and harder to make the case for these.

Yep. Yeah. Good point. I mean, at any point there can be some catalyst where Canadian brokerages allow for a lot of the financial engineering being done here and then they're just not needed. And sorry to my friends over there. We would never be dishonest on the pod in front of the people. And so they just wouldn't be needed. But until then, sounds like they're useful. Okay. Let's leave it at that oh my goodness my watch list went from pretty nice looking to very very red or should i say very nice looking yeah i was gonna say if it's a watch list yeah well it's just my watch list on strategy.io that's just i have a couple and one of them's just my portfolio so i'm looking at that one. That's the one. Just have to thank good old Jerome.

Thanks, Jerome. You rock. All right, let's sign off before I pass the F out, which is quite possible here if we're staying on any longer. Well, thanks for doing the show. Thanks to the people for listening. We appreciate you very, very much. We love you a long time. We release episodes twice a week and we love doing it. We're going

to keep doing it as long as we can. Until Simone's a trillionaire and I got to convince him to come do the podcast with me. But until then, until then, buddy, you're locked in here. You're locked in with me twice a week, you got no choice. Yeah, no end in sight, at least. Yeah, people ask like, what's the long-term plan? I'm like, I don't know. What's your long-term plan? I don't know.

It's like, yeah, me neither. I don't even know what I had for breakfast this morning. Actually, nothing, because I feel like absolute trash. But you get the point. Thanks for listening. We'll see you in a few days. If you do want to subscribe to a Stratosphere premium subscription, any of the subscriptions, you should go for it now because the price is tripling on November 29th. See when I got the date right. That is just four weeks away, almost exactly. So go ahead, go on there. We're going to grandfather

you in on the new pro plan. So if you sign up on the personal plan, we'll grandfather you in at the pro plan and take an additional 15% off with code TCI. Because we're such good guys, right? Come on. Look at the deal here, right? Look at the deal. Go on stratosphere.io and use code TCI and we'll grandfather you in on the pro plan on November 29th. Please don't share that information with me. I'm trying to get off the dirt and ramen. Don't share that globally. Keep that close to the chest or else it's going to be more dirt and ramen in my future. See you in a few days. 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.