The Canadian Investor - 5 Variables to Consider Before Investing in Oil Stocks

Episode Date: April 24, 2023

We start this episode by discussing 5 factors that will impact the price of oil in the coming decade. Braden talks about the book 7 powers by Hamilton Hemer. Simon goes over how he sees his portfolio and his updated investment strategy. We finish the episode by discussing ETFs and why it is often best to keep things simple when using an ETF strategy. Symbols of stocks discussed: CNQ.TO, NTR.TO, FNV.TO, QQQ 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

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. The Canadian Investor Podcast. Welcome to the show. My name is Brayden Dennis, as always joined by the tenacious Simon Belanger. We have a great Monday release for you today. Talking about all kinds of frameworks. Simon's going to get deep dive

into his new, I don't want to call it new, but like the way he's thinking about his portfolio right now. And then I'll round it out with a segment I'm calling ETF brain damage, which is something that's constantly on my mind. And I'm happy to share it with you guys. Simon, I don't know if i should do a workout class before one of these recordings i think that was probably the last time i do that you're exhausted dying right now uh it's so funny you texted me you're like do you need help like ordering this mic and like all this stuff you're like you know i'm setting up riverside like i know you're really busy with stratosphere like i'm releasing this new finch apparatus like don't worry and i'm like should i tell him that i haven't looked at my computer screen in two hours

and i'm literally at a workout class right now no it's good i mean i listen uh when my back's not killing me i listen to conference calls on uh on the bike trainer. So I know what it is. Conference calls on the bike trainer is the most you thing of all time. All right, let's get into it. You got the first topic here. What do we got? Yeah. So I wanted to talk a bit more just with some number in terms of what we might see going forward in terms of energy and oil and just kind of uncertain the future is when it comes to that and the potential impact, like I discussed in the previous episode on inflation. And there's probably as many people that argue that it's going to go

down versus it's going to go up. But the reality is that the price of oil and the price of energy will play a massive part in what direction things go for years to come, whether we talk about inflation or even economic growth as a whole globally, but also obviously in North America and Canada. So there is more to energy than just oil, but it's a large component of that. Of course, you have several forces right now affecting oil prices. I'm going to try to some of the bigger forces that I think are really impacting and it's worth thinking about, especially for those who are interested in investing in, let's say, Canadian companies that are oil producers or pipeline companies because they're going to be affected by that. So five big things. So the Organization of Petroleum Exporting Countries, also known as OPEC, and obviously

Russia, which is considered OPEC plus because it includes Russia, have announced that they will cut an additional one million in barrels per day starting next month. That's after two million barrels per day cut back in October. So the cuts, to put some perspective here, amount to about 3% of the world's petroleum production. And it's hard to predict what it will do to oil prices because the reality is those countries are not stupid. And they're most likely doing this because they think globally the economy is slowing down and they're essentially just attempting to control the price of oil by doing so and put a floor. So yeah, we've seen oil prices kind of knee-jerk and jump in the short term, but I think it's anyone's

guess what it could do in the next year or two, because if the demand kind of reduces worldwide, then clearly it's going to affect the price even with those cuts. Anything you want to add there? Yeah. Is the big wild card here Russia? Like, what's the big question mark? Well, one of this question, I think there's a couple, right? Obviously, Russia. Yeah. Yeah. Yeah. I think, I mean, not necessarily Russia, but I think OPEC countries aligning

with Russia in terms of deciding what they're going to do, but also the global economy. So, you kind of have a two in one here, but just to show that a cut in production doesn't necessarily mean higher prices if there is a strong kind of slowdown in global demand. Okay, that's the really important piece. Okay, cool. Yeah. Now, one that's been talked about, but I find not that much in mainstream media is refinery capacity. So, there's been a shortage. I've talked about it on the podcast before and my interest for investing in some refiners and that's why i think you know suncor is an interesting one even though their management

has does not have the best track record because they do own some refineries but there are also some plays in the u.s that have kind of massive refinery capacity one of them that comes to mind is Marathon Petroleum. But the current capacity is about a million barrels per day below what it was in the US. Below what it is, sorry, compared to what it was just a couple years ago. So the 1 million barrels per day below, that's a reduction of 5% since 2019. The US refinery capacity was 17.9 million barrels per day below. That's a reduction of 5% since 2019. The U.S. refinery capacity was 17.9 million barrels per day in 2022. Yet the U.S. consumed 20.3 million barrels per day in 2022. And that's straight from the U.S. government website. So that's definitely a pretty significant difference. It's being made up, of course, by imports. And that's important because you can't consume oil straight out of the ground, right?

So you have to refine it. There's different kind of refineries because they'll produce different outputs. And also the inputs will vary depending on the refinery. So there is a big concern for the U.S. because of the changing geopolitical climate and how we seem to be heading from a unified U.S.-led world the changing geopolitical climate and how we seem to be heading to a from a unified U.S. led world to a more fragmented one so there's definitely there could be some potential issues going forward for the U.S. but obviously Canada because we're very tied with them on that refinery capacity so you got a you got a two and a half roughly two.5 million, just under, delta between U.S. refinery capacity and consumption.

Yeah, that's correct. Yeah, straight out of the U.S. website, the data. So if anyone's interested, let me know on Twitter. I can add the website if they're looking for the data. The other one is production capacity under investment. This one I've been hammering on quite a bit. I think there's been some medias that have talked about, but essentially the TLDR is since the oil crash of 2014, there's been chronic under investment in this space for several reasons, because one reason and company are looking for

production options that have lower break-even costs so if the price of oil dips they are still profitable and that's why i like canadian natural resources because they're profitable even at a 35 dollar wti so west texas intermediate even if it drops to that that level So I think there's a good margin of safety for them, but not all producers are like that. And there's also been a shift of how government approved new projects because of enhanced focus on clean energy. I'm not saying that's a bad thing per se, but the reality, and I know you can talk to that, is that we're not ready for a clean energy transition you know right now we still need and will still need oil most likely for at least you know several decades but

definitely at least for 10-15 years to come well the thing i would say about that is we're certainly ready for a transition um yeah but but the a transition doesn't mean cold turkey tomorrow. It is a transition. And there is, of course, going to need to be supplementary fossil fuels, mostly via oil and and natural gas for still quite a long time to come. It's just the reality of it. And we've had severe underinvestment in that because it's just hard to get excited about something like that. It's hard to get excited about a transitionary commodity. And we're going to be on it for a long time, but if it's still labeled as a transitionary commodity. And we're going to be on it for a long time,

but if it's still labeled as a transition, it's cyclical, it's, you know, eventually going to zero on a long enough time horizon, it's really hard to garner excitement about it. Yeah, it is. And obviously there's been a push towards going away from fossil fuels and you know i'm kind of i've said it before i have kind of mixed feelings on that and especially i think

this one you'll be well aware of is there's this push to go on renewable forms of energy but for whatever reason whether it was a fukushima power plant or just, you know, I don't know if there's special interest, whatever it is. But for whatever reason, countries have been as a whole shifting away from nuclear power. And that would be the solution to speed up that transition. And unfortunately, we've seen it. I think it was today or yesterday where Germany shut down its last nuclear power plant. Yet they've been consuming more and more coal. So in what world that actually makes sense, I have no idea.

But it's kind of idiotic behavior. It's unbelievable what has happened there. I have some data actually on this that I'd like to share after. Yeah, yeah. So that's just an example and it's just the more i listen to experts on the subject and i read about it the more it i don't know it annoys me i don't know what the right word is i'm kind of you know i probably would have to use a french word but i think it's so like you said it's so stupid because we have that form. And overall, yes, it's easy to look at some, you know, major incidents that happened in the last, what, half century. But the reality is, if you compare it with incidents that happen,

whether it's oil spills or any other type of incidents related to energy. I mean, it's actually quite safe. It's just when something bad happens, it's really bad, I guess. That's right. And the technology has changed so much. 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. 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. Here's some data on this. Germany now has completely reversed course on their electricity production. Their grid looks entirely different now in terms of sources of power. Ontario has a carbon intensity of, and carbon intensity is measured in grams of carbon dioxide equivalent divided by kilowatt hours generated of electricity. They have a 28 grams of CO2 equivalent for every kilowatt hour, so 28. Germany has a carbon intensity of 519.

That is a giant dramatic 20x basically dramatic change and and ontario has an incredibly incredibly uh good grid for this because we have a huge population uh you know most of canada has a really impressive grid but ontario is particularly impressive because it has this huge population it has to support and it is done via nuclear. At any given time, this is data yesterday from 1 p.m. yesterday, the carbon intensity was 28 grams in Ontario. 97% of it was low carbon and yeah, roughly eight gigawatts was coming from nuclear, a few gigs from wind and almost five gigs from hydro. So the grid is nuclear and hydro, which are not producing any combustion in the process. A little bit of supplementary peaking power gas. No coal in 2014.

No coal. They took it all away. Germany now, nuclear, coal is now the number one source exceeding 10 gigawatts yesterday at 1 p.m. on the grid. So, like, it's- And coal is the worst. It's the worst. It's the worst form. Yeah. And I don't, this shouldn't be political political but i don't care what your stance on

you know climate change you know is it a big deal right now do we have to worry about this your health gets massively massively impacted by coal uh you know being near a coal power plant. There are nitrous oxides that leave all combustion, but especially coal. There's small, tiny little particulate matter. And I'm an environmental engineer, so I can speak to this, that goes into your lungs less than two and a half nanometers. And it will go into your bloodstream and never leave. These are harmful nitrous oxides that are very, very bad for human health. And it's just unfortunate what has happened here with the German electricity grid. It makes no sense to me.

It's a complete blunder, from my opinion. And they're stuck in that situation, too. I mean, let's forget about nuclear for a second, but I mean, they were overly... They just increased their dependency. Yeah, they were over-reliant on Russian gas. And then they, you know, we obviously saw what happened the past year and a half with Russia invading Ukraine. And now they were stuck to, know kind of adjust cores and for whatever reason they thought that part of adjusting the course was a good idea to shutting down their remaining nuclear power

plants but anyways um i think we've talked about germany yeah good right what's that's good yeah what's happening there but people are upset about this because it's there's just so there's way more questions than answers and that's why yeah exactly um now to get back to what i was talking about but i think this was good this i think was you know it was good and just i think just so people understand um i think for us we're more realistic but we also want to point out some of the misgivings in terms of there's a push for ESG, but there's this kind of source of energy that's quite clean that for whatever reason, it's not being used how it could be used in nuclear energy. A lot of Europe, France, same thing, shutting down their reactors. Yeah, I thought France more um nuclear power still they do but all these online they do they do a lot of these euro companies and france has been a huge uh

huge user of nuclear power a lot of these countries are moving away from using it and they you know they they're trying to be clean they train they're they're claiming to be clean and they're not using the most clean reliable baseload power source that we have on planet earth and not intermittent intermittent right i think that's the biggest thing um as great as wind and solar is the reality is if there's no wind or the sun's not shining, you have to find a way to store that energy. And we just don't have the technology to store it for long periods of time right now. So that's why nuclear power makes a whole lot of sense.

But anyways, getting back to this. You got an engineer fired up about power here. I know. I know. You can tell I've been reading more on it. Yes, I'm impressed with your knowledge right now. So the U.S. Strategic Petroleum Reserve. So this one is quite important.

It's called the SPR. If you start taking an interest into energy, you'll probably hear an expert kind of mention the SPR, and that's what it is. The reserve can hold up a bit more than 700 million barrels of crude oil. The reserve have been above 600 million barrels for several years. However, in late 2021, 2022, the US started selling some of the SPR to try and bring down the price of oil. The reasoning being, if they release more oil into the market, there's going to be more offer, and therefore it should alleviate oil prices. It probably played a role because oil prices have definitely gone down compared to that period of time. However, now the issue is the reserves stand at 370 million barrels of crude oil.

And you're kind of doomed if you do, doomed if you don't. Because if the U.S. starts to replenish the reserve, it would increase demand for oil. And therefore, prices would most likely trend higher. However, if they don't, then it removes some of the flexibility that they would have in future to use this tool. And it removes some of the flexibility that they would have in future to use this tool. So that's definitely important because, you know, 700 million barrels, if the reserve is full, is, you know, it's not, it's still a significant amount, especially if they release a decent amount every day. They can still have a decent impact on oil. And the last one here, I didn't mention at the beginning, but essentially it's the overall world economy.

Global recession would lower demand for oil and most likely the price. So it's really, you know, that's the demand side. And I talked about the SPR. That's kind of the, you know, the offer side, offer, I guess, or supply side. I was looking, thinking in French. So that's why I kept saying offer. Yeah, I was looking, thinking in French. So that's why I kept saying offer. But there's just a lot of moving parts. And it's hard to predict. I know you don't really like to invest in these type of companies. I think for a big part, this is the

reason here is that there's just so many moving forces that impact the price of oil. And I probably could have added like four or five other ones, but I think those are the ones that definitely have a big impact and will continue having a big impact in years to come. I'll be your AI summary for the section here. Simone's energy wildcard points here are OPEC in Russia, refinery capacity shortage,

production capacity under investment the u.s strategic petroleum reserve and the overall economy um now you have to give me a thumbs up or thumbs down if i summarized it good thank you thank you alexa no i mean let's talk about establishing power establishing power There's a book that I've talked about on the show before called seven powers, but I've only talked about really about the first two thirds of the book where it discusses the seven powers of businesses. Think of them like moats, kind of same, same, but different from a moat. And the last third of the book is about establishing and maintaining power and the different progressions of rising to power. So it lays out the first seven, like,

what are these power dynamics that businesses can use and have to gain competitive advantages? And then the last third is just more about keeping them and the different phases. So that as a recap, the seven powers by Hamilton Helmer, number one is scale economies. Think about Costco. Number two is network economies. Think network effects like meta. Number three is counter positioning. Think Netflix against Blockbuster. Number four is switching costs. Think of B2B software, cloud, really sticky, hard to switch. Number five, branding. Think Coca-Cola. Number six, cornered resource. Think of a patent for an important drug. Number seven is process power. Think Toyota's manufacturing excellence or Amazon's delivery infrastructure, a process that is a huge barrier to compete with and can often be quite capital intensive. for these businesses. Because sure, it's great to look backwards at a business's power and moat.

But how do we recognize the early stages of a business gaining power? How do we recognize their ascent, their rise, and then their stability of power? And so he puts out in the book a graph here that I'm going to try to describe. And we're going to put this in the show notes as well under a blog post called Establishing Power on thecanadianinvestorpodcast.com. So you can see the graph there. And the Y-axis is business size, and the X-axis is time using origination of power, a takeoff of power, and stability of power as the curve kind of flattens and matures. Now, in the origination of power, a business will stumble upon a cornered resource like a patent or an important counter positioning. So Netflix counter positioning against Blockbuster, me counter positioning against Bloomberg. The takeoff is network economies. So you're now building a really strong network of network effect here. You're gaining more users. That's making the platform more powerful. You're now taking advantage of scale economies. Now Costco is able to flex their pricing power and scale and size to make sure they keep getting better prices for their members. And now we're in this takeoff of power

and switching costs. Number three, you have stability where your brand starts to matter in your refined process power that you've built up and built up over potentially decades to maintain your power. And I think there's a lot of correlation here on this curve of risk and return in terms of investment opportunities and the curve of power. So as you move up the curve into more mature stages of power, it becomes about keeping it and more about the stalwart type growers in the origination, in the early areas of taking off of power, you have these more smaller businesses and, you know, they're still more risky. The outcome is more varied, but your returns can be gigantic. Yeah, no, it's an interesting, definitely interesting, and you can, it's easy to relate to it. I think, I guess, in the stability phase, probably the only thing that could be dangerous is a company not innovating anymore, I guess,

depending on the space, right? Yeah, totally. And I think that many of the companies that reach stability will also take advantage of many, many different aspects of power, scale economies, network effects, switching costs, branding, process power. They're kind of utilizing all of those if they're really stable, gigantic global behemoths. But you're right. They, you know, the only thing constant is change. You know, there's the entropy of business, which is means there's going to be a slow death for all of them. And that's just the reality of it, which means there's going to be a slow death for all of them.

And that's just the reality of it. And so it's important, as you said, to be thinking about originating more different types of power as well with continued investment in R&D. Yeah. Well put. 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. 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. For full disclaimers and more information. Now I guess we'll move on to. I guess my new investment. Or let's say you know. Tweaked or slightly changed. Kind of investment philosophy.

And before I go in here. I'll just say it's not investment advice. This is what you know. I believe is best for me. But you know other people may have different opinions. And I totally understand. And also different risk appetite, because there's going to be things that are definitely riskier here. And I'm not changing my whole philosophy behind investing. I'm definitely

more tweaking it, adjusting some allocation compared to what I had before. The overarching idea is simply to hedge my portfolio so it can perform well regardless of what's happening on the global macroeconomic environment. Because it's easy to look back at the last century or even half century and think that history will play out in a similar fashion. But, you know, there's a lot of competing forces right now. And I think it's definitely hard to predict where things will go and how different investment will perform going forward. One of the things I want to hedge against is a changing global order with the emergence of China as a kind of major world power, but also regional powers. Same thing for Russia and Brazil or even looking at Western Europe and the fragility of some of their largest economies like Italy or France. And I think, you know, although the de-dollarization has been overstated and the de-dollarization,

essentially people saying that the U.S. dollar will become irrelevant, I think we'll see more diversification in global trade and global reserves. we'll see more diversification in global trade and global reserves. So my belief still here is that US dollar dominance will stay, but it will definitely fade a little bit compared to what we had seen in the last, let's say, half century, 60, 70 years. So I definitely want to hedge my portfolio a little bit against that. There are tons of books that go deep into the changing global power. And I encourage people to read on that. And if you're a joint TCI subscriber, you probably noticed that I started shifting my portfolio a little bit. So having said that, and the prelude in terms of hedging my portfolio a bit more, here are the big buckets, what I'm thinking about it and brayden

feel free to you know tell me if i'm out to lunch but i did you know like i mentioned at the start this is not investment advice yeah exactly and this is just you know this suits my you know what i'm looking to achieve again like i mentioned this is not suitable for anyone and definitely i don't like you know make sure you do your own research and understand what you're comfortable with in terms of holdings, because what I'm going to talk about, you may think, oh, wow, this is way too risky for me. Or you may want a larger allocation in some places than others. Now, 70% of my portfolio, the goal, and of course, when I say a percentage, that's kind

of a ballpark goal because I'm not going to be adjusting every time it goes, you know, a little bit above a percentage or anything like that. So 70% of my portfolio in equities index funds primarily in my DC pension would work. That would be around 30%. And then I would look at having high quality companies that have sustainable business models. So not commodity related here. Around 20%, 25%. I will give myself some kind of leeway if I want to invest as well in terms of certain companies that I think would be good value plays. So I'll give myself a 0% to 5% kind of leeway there because sometimes

that's what I did with Allied Property, Reed, is I invested in it because I think the market is too pessimistic on their business. The other part here is high growth profitable companies, around 5%. So I'm talking about here profitable companies that are going very quickly i'm not they might not be the most profitable but they're actually sustainable in terms of business model and then the one of the bigger change here is high quality commodity companies around 10 percent so i'm looking here having some oil and gas exposure which i already do a little bit with canadian national resources precious metals are something i would would want some exposure to. Definitely something like Franco Nevada interests me quite a bit,

which is a precious metal streamer. And other commodity-related play like a nutrient or even a tech resource could be an interesting play if you're looking for a commodity. I haven't made any decision here. The only position I have is a Canadian National Resources. Anything you want to add to that or roast me about? Yeah, get ready for a roast. No, so 70% equities, I'm looking to hear what the next 30 is going to be. But, you know, 30% of that's in indexes. So you have like, you know, low cost broad based ETFs, I'm guessing. And then, you know, these companies that you're describing are, you know, pretty blue chip, you know, like this is not, I don't really

have any hot takes about Brookfield, Microsoft, Google, Apple, and CNR. I mean, you know, these are maybe on the Mount Rushmore of blue chips. Yeah, not the most exciting, but definitely. Also some interesting like CNQ, Nutrien, some precious metals, some commodity names. Like you're going full doomsday prepper here, the fall of the empire. Well, 10%. commodity names like you're going full doomsday prepper here the fall of the the empire well 10 i mean it's not uh you know it's not that high but i'm just let's start over with your doomsday prepper yeah yeah exactly with the last episode people think uh i am but i'm definitely just trying to hedge a little bit um to perform i think from what I've read and what I've been kind of researching, that it's a portfolio that should perform well in a variety of economic environment. That's kind of the way I see it.

Now, the next one, which I know, I guess it's probably going to be 50-50 in terms of listeners. Half will say I'm crazy. The most divisive thing of all. Yeah, the most divisive thing for all. say i'm the most divisive thing of all yeah the most divisive thing for hello so i'm looking at having around 20 in bitcoin um which is around where i'm at right now um i view this and for a lot of people this will seem like crazy it's way too high and i completely understand that i mean for me i'm comfortable with that but i wouldn't let it go more than 25%. So if it does go more than 25%, I would actually trim and then reallocate that to equities, for example. So I do have a rule in place. It's obviously

a flexible rule there in terms of I won't add if I'm at 20%, which I am right now. So I'm not adding anymore. Just kind of letting it run. If it goes too high, then I trim back to have not too much volatility in my portfolio because it is quite volatile in terms of asset. But the way I see it is just insurance against the financial system, but also insurance against capital controls because capital controls, for those who are not familiar with that, essentially a country is restricting cash from moving in and out of the country. And there can also be capital control on certain assets or to the extreme government forcing you to use money on certain items, which is something that people fear, for example, with central bank digital currencies, which are CBDCs. And China is already experimenting that so one of

the things that they could do is say okay here's 50 you have one week to spend it and you have to spend it on groceries but not alcohol or this or that so they're basically forcing you to use the money the way they want. And unfortunately, some governments are kind of moving that way, China being the most clear example. And I'm not saying it will happen anytime soon to Canada or the US, but it's also not impossible. And there are some historical example, but the Gold Reserve Act of 1933 in the US is a clear example of that, The Gold Reserve Act of 1933 in the U.S. is a clear example of that, where essentially you were it was outlawed to have gold. So the government outlawed that.

It's not the case anymore, but that's just an example of the government imposing capital controls. And again, this may sound like a lot for for a lot of people, and it's not investment advice is just what I believe in. And I'm trying to have a framework in terms of balancing all those risks out i think there's also important context like it has gotten to the point it has like of immense size in your portfolio because you have made so much money on Bitcoin. It's kind of unreal. So, I mean, I let stuff run. I would probably not do this, but that's okay. Do your own work, man. Do your own work. Nothing you hear on a podcast is investment advice. Do your own work. You have extreme conviction in this uh in this technology i believe that it's quite impressively immutable i think that's the one like

character trait of it that makes it such a good currency uh i think there's a lot of things that make it a really good currency not without its drawbacks but it's uh it's i have the same stance on it that i've had it the whole time which is don't own zero and not paying attention to it or saying it's rat poison squared and walking away just makes no sense in 2023 i i that's the way i view the world here yeah yeah and i think you know a lot of people will hate on bitcoin for various reasons and people are entitled to their opinions um i think a lot of the time it's cherry picking some data to make their narratives kind of you know to, to justify their narratives. But one thing that I'll leave for people food for thought here is, you know, whether you agree or not with the

sanctions that the US did against Russia, for example, they use, they pressured, so the SWIFT system would not be used by Russian bank. Well, that's not the only time the US actually used the financial system to put sanctions. And what that does, I'm not saying they shouldn't have done it. I'm just saying that they've done it quite often now. And the more you do it, the more you kind of put in the head of various different countries that, okay, I may be in line with the u.s right now in the western world but what if i'm not in five ten years from now how can i hedge against that and you can i wouldn't be surprised if you start seeing for example countries starting to build some reserve not necessarily like 100 or anything like that but just hedge against it because what's the other option

going towards the chinese yuan and then you know trusting that china's dictatorship will act in your favor so it does create a kind of middle option that along with gold for uh for countries that may be kind of in the middle of the u.s and china for example um the last one here so if you add up the percentages, and obviously, like I said, there's flexibility because things move on a daily basis, but it would be cash and cash equivalent around 10%. And that's more of the times right now. I just think it makes too much sense to have some cash available to be deployed at a moment's notice because of the interest rate that we're able to get on money market funds. We talked about in previous episode, you can get four and a half, 5% or some high interest savings ETF. So the cash just allows me to be opportunistic if I want to be. I'm still dollar cost averaging with my index

funds. What works, I'm still buying in the market on a regular basis but having that is just allows me to essentially be pretty close to keeping my purchasing power but having something that i can deploy it as a moment's notice and i would not have had 10 a year ago i can guarantee that but right now the circumstances are that it does make sense in my view to have some there i see the i see it the same way here i like what a gigantic shift in the opportunity for for cash when you can have it sit there and It's a new world, man. It's a new world making money on cash. It's crazy, huh? 5%.

Can you imagine a year ago, like a little more than a year ago, you were lucky to get 1%. I know how quickly things change. But in many ways, how quickly things stay the same. Let's talk about ETF brain damage. All right. I'm excited for this one etf brain damage i'm curious i saw the the notes but i like i i'm curious to see where you're going with this i love the title i just want to i want to write a blog called etf brain damage all right so these are types of questions I might hear on a maybe daily basis, what I see online and in the world of Canadian investing and all over the world. These

discussions are happening. Should I have a global index? Should I have it in S&P 500? Should it be all in Canadian stocks? Should it be none in Canadian stocks? Should it be none in Canadian stocks? Should it all be in the NASDAQ? Should it be in the US total market? Holy smokes. All right, folks, to understand the appeal of low cost index ETFs, you have a few clicks of a button. You get global diversification to stocks for a cost that is approaching zero. That is Z-E-R-O, zero. Wonderful performance historically with the market returns. Very, very low fees. Like I said, practically none. No extensive due diligence required. You make good returns. You outperform professional money managers historically while you sit on the beach. What a fantastic value proposition. All right. We're all on the same page here, but then you take this beautiful thing like ETFs and you have these perennial debates that cause me brain damage. These perennial questions I might hear, should I buy the S&P 500 or should I buy

the US total stock market? Should I buy the QQQ, the NASDAQ or the S&P 500? Should I buy the QQQ, the NASDAQ, or the S&P 500? Should I buy the TSX Composite or the TSX 60? Should I buy the S&P 500 or an all-world fund? How about one that includes the Canadian stocks or one that is all-world ex-Canada? Do you see where I'm going with this, my friend? Oh, yeah. We've taken something beautiful and we've ruined it for no reason. The beauty of these instruments and these what are financial products that I think are good for the common person are so simple. Don't ruin the beauty of it with ETF brain damage. We all have a friend who deals with

ETF brain damage. I have many close family members that decide to deal with ETF brain damage. So send this segment of this podcast to them. Give them a little timestamp. Send them a link of this podcast. These instruments are market cap weighted, unless they're specified that they're not, but they are, unless they say this is equal weighted, and you will know it'll be right in the title. So they're market cap weighted, which means if you're comparing the S&P 500 index fund versus the US total market index fund, aka you can buy it through an ETF, you're getting basically the exact same thing. And the reason for that is that Apple and Microsoft make up the top 15% regardless.

The top 10 holdings are going to make up 25% plus of the fund. The top 50 is going to make up 25% plus of the fund. The top 50 is going to make up a gigantic percentage of it. The top 500 is going to make almost all of it. And then you have a sprinkle of a sliver of all these companies on top of that, if you have the total market. So what do you do? You're like, what's better? Historically, this one's done that. Historically, this one's done that. What about the NASDAQ? It has more tech. What about, yeah, brain damage? The answer is simplicity. You don't need to be mixing and matching these things. They have so much overlap. And what's the point? What's the point? We've taken something beautiful and made it ugly. I personally, non-investment advice, nothing on this show is, I personally do and would pick the lowest cost global equity fund or an all-in-one type thing. global equity fund or an all-in-one type thing um pay six to ten basis points and fees keep adding to it consistently that's one holding it's just one thing it's so simple and so

effective uh let's let's keep beautiful things beautiful all right that's uh that's the segment beautiful things beautiful all right that's uh that's the segment yeah i mean i kind of like i like i just talked about i have right now around 30 of my portfolio in index fund and the vast majority is in just a global index fund just one just because one yeah love it yeah yeah and i mean i put a little bit in a can actively managed fund, which is actually quite low fees. And I just preferred the holdings better to the index for Canada. And that's it. I don't overthink it.

And I think I'm going to add to what you said, too, is one of the questions I've seen is people will invest in an S&P 500 index fund and there's tons of them right so there's tons of them and then they're not sure which one and then they'll invest in one and then a year later they look they're like oh should I sell to buy this other S&P 500 that's like two basis points less and honestly like you have to use common sense there we harp on fees a lot but one or two basis point is not gonna make really that like a huge difference unless you have millions of dollars in that index fund so that's something the one you just sold the following year they got to keep up with competition and they match it or beat that fee.

And then what are you going to do? Flip back? Yeah, it's going to be like from year to year. It may be like you just said, it will kind of flip flop whichever one it is. And then you may have some fees associated with trading, maybe not super high fees. But I think a lot of the time people are overthinking it. But I think a lot of the time people are overthinking it. Clearly, if there is a difference of, you know, more than 10 basis points, I think then if you have a pretty large sum, it's probably worthwhile thinking if you're comparing Apple to apples. But I think a lot of the time it's also not overthinking it.

Yes, don't overthink it out and that this falls into the exact same category that you're talking about with which is okay now i've narrowed it down to i'm gonna roll with the the s&p or i'm gonna roll with the global index i'm just gonna keep it simple yeah i don't want the brain damage but now which one do i pick you know there's so many and they're the same thing you And they're the same thing. They're the same thing. Just pick the lowest fee one and that's the beauty of it. You've done it. Congrats. You made it to the finish line. Let's not cause any more anxiety about it for no reason. It's a beautiful thing.

I have something unrelated to ask you right off the press. Yes. Turns out, so last episode we talked about Ryan Reynolds investing in Neuve. Yes. So there's a short seller report out today. Today? Yeah. Apparently just came out Spruce Point Capital.

Oh, Spruce Point. They just grab every TSX stock and have a short report on it at this point yeah it's too funny but uh sorry i just had to know that right off the press like my i have an apple watch and i kind of saw it just pop up i'm like oh man like we recorded the this episode in the last one back to back so it feels very fresh that we talked about neuve and uh ryan reynolds and then the news of a short report but i feel like spruce point doesn't have the best they're losing the track record man yeah so when you spray and pray like i think they have on short reports uh it loses its its punch. Nouveau's down 1.5% on the day, which is embarrassing for Spurs Point.

The way I see it. Anyways. That's the way I see it. The timing's just interesting. Let's just say that. It is interesting. Their points can be like, they're desperate for a life

raft and so they need uh they need ryan reynolds i mean maybe that is the the bash right like i think i was talking about it on when we recorded that show it was like what is the next level of growth they've had flatline revs since december of 2021 like quarter after quarter after quarter at least it's stable but there's been like no sequential growth and for a tech company if you have no essentially no sequential growth quarter after quarter what's the attractiveness like that's why people like tech it's just so sticky and recurring and so we'll see yeah i thought it was an interesting one but i guess uh that's about it unless you have another breaking news no i don't i don't uh let's uh let's wrap it up there thanks

so much for listening to the show we appreciate you very much if you have not checked out our patreon is at join tci.com and uh it's a little it's $9 Canadian a month and you get access to our personal portfolios, all the stuff that Simone's talking about. You see it with the actual holdings. And we also have a portfolio spreadsheet tool that you can use in there. Like, you know, it's a Google sheet, you copy it. You put in your holdings. It's the one that him and I use for our own portfolio. So that is also included. And more importantly than ever is that it gives us the ability to keep doing this every single week, every Monday, every Thursday, we're here. And it's because of your support. So we appreciate you very much. That is a joint TCI.com. We will 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.