The Canadian Investor - A Short Report That Shocked the Markets

Episode Date: February 2, 2023

In this episode, we cover the recent Bank of Canada interest rate increase and their monetary policy update. We then look at the short report on Adani and cover the earnings of American Express, Roper, Whirlpool and Spotify. Tickers of stocks discussed: AXP, ROP, WHR, SPOT 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. Register for ShakepaySee 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 Bélanger. The Canadian Investor Podcast date is January 31st, 2023. Welcome into the show. My name is Brayden Dennis, as always joined by the majestic and the fearless Simon Bélanger. We are at CDN underscore investing on Twitter. And if you have not yet gone to join TCI.com to support the show, that is our Patreon page.

So go ahead and check that out. Before we get into it, Simone, I just want to highlight a great review here just from today. Great info for anyone interested in investing from Joe in Canada. A well-rounded show with good info, interesting topics, and many different takes to help us increase our investment knowledge. Thank you so much, Joe. We really appreciate you. Simone, we have a hike from the Bank of Canada just a few days ago. Give us the lowdown. Yeah. So the headline was that the Bank of Canada is doing a 25 basis point increase and that they would be pausing the interest rate hikes for now and i'm i'm sure at this point everyone has kind of heard about this

and i didn't want to you know i wasn't sure if we wanted to do a huge segment but then i figured there's not that many earnings going on so it's a good time to talk about this especially since there's a bit of shift in direction that's happening and i did well there's tons i don't know where you're hanging out but there's we got earnings like every second right now we do but as we we do these notes a little bit in advance right it's not easy to do them on the spot all the time so that's what i meant there will be plenty this week that we'll be talking about when we record early in the week like it's mondays and fridays are quiet days on in earnings world so it's funny it's like yeah it's it's a quiet uh quiet week of earnings and then you have like 400 companies reporting tomorrow morning yeah and there's a lot of companies just the ones that interest me at at least. There wasn't that many, but I definitely found a few as I was digging.

But to get back to the Bank of Canada increase, they said, like I mentioned, that they will do a conditional pause and that if they need to do more hikes to get to their 2% inflation target, they will. And I even listened because I had some time to lose while I was carrying my baby girl. She was doing her nap in the last nap of the day. We have to carry her because she won't sleep in her bed. And I decided to listen to the press conference. It was pretty interesting where they really want to target that 2%, not the 1% to 3% range. He made a point to say that no, they want to target the 2% because if they target the 3%, then that range could change. So it's interesting what will happen there.

And for those who don't remember, at this time last year, and I did tweet about that, and it went pretty viral. I was actually surprised that last year, the interest rate from the Bank of Canada was 0.25%. It's now 4.5%. That's the most rapid increase since the late 1980s. It's almost unprecedented, but obviously, well, for a lot of people that are younger, they've never seen that before. And I know it's not as high. They saw interest rates in the teens back then, but just the fact that we went so quickly to that 4.5%, that's really what's, I think, putting the hurt on a lot of people right now. That's the thing, right? You see online, look how dramatic rates have gone up or they feel so high. And then there's always the,

well, historically, they're low. You graph it out and historically, they're low. And even if that is true, you're right. It's the pace of hikes. It's the move from zero free money to actual interest rates. That's the move that really shocks consumers and the economy very quickly. And you're operating in a completely different world. Yeah, exactly. And the first thing I noticed when I was listening to the press conference is in his opening remarks, Tiff McClellan was saying that a lot of things are not as they expected. And I think that's important to remember that, especially when you listen to the Bank of Canada

and trying to make even some major decisions to just take what they say with a grain of salt. The economists as well in general and, you know, anyone else, right? No one really knows what will happen and one thing that they said was not as expected is that the economy is not cooling down as much as they thought and global supply chains are actually recovering faster than expected so i'll give the bank of canada the benefit of the doubt here but i do wonder if they've considered things like job vacancies when doing these rates to slow the economy down because for the most part they're trying to slow down the labor market because the labor market is extremely tight which means that the leverage

is in the hands of workers which they can ask for higher wages because prices are increasing and you create this kind of vicious wheel that they don't want to see. They do not want to see inflation get out of hand. And I pulled some data which was interesting in terms of vacancies where it's kind of offsetting these rate hikes where businesses may not be creating new jobs. They might not be, but there's still a lot of vacancies. So in Q1 of 2020, there was 513,000 vacancies in Canada. In Q3 of 2022, that number was 992,000, down from a bit more than a million in Q2. So it's still very high.

So it's still very high. And just for context here, it has been between 890,000 and 1 million since Q3 of 2021. So part of that is because there's been a lot of retirements. So, of course, you have retirements that are way higher. And I pulled some data where you had retirements that were around, you know, 200,000 per year since 2013. Some years getting a bit higher, around 260, 270 in the 2019, 2020, and then kind of went back down as people were, you know, might as well work because I'm stuck at home anyways. And then 2022 saw a big, big, big jump of 306,000 retirements in Canada. So that's a pretty big increase and that's a

trend that we're also seeing in the u.s and also a lot of people who either got affected by the pandemic lost their jobs and just decided to not go back to work so i think it's really interesting to see all these different type of things kind of butting hands against each other. And all I'll say is I don't like I mean, I think the Bank of Canada was pretty clear in their press conference. They don't really know. So it's kind of funny when people are trying to make projections or you hear people saying

like, oh, there's going to be rate cuts in six months or whatever it is. There could be by the end of the day. I think the data will definitely be driving that. So I, you know, you can make the best projections as you can. I think the ones that I put the most weight in are those that put probabilities with different outcomes. So they're not saying it's going to be down 100 basis points in six months, they say, okay, there's a 10% chance of this happening, this other scenario, this other scenario, and so on. This is really interesting data about retirements. And you said you're seeing something similar in the US on the data side. Yeah, it's weird. You

had this pandemic era where retirements were way down and then it caught up, right? It was like lagging and then it really caught up this past year. I think that a lot of people were just like, hmm, why retire when I can just hang out at home? Or should I say hide at home just for another year or so? This is super anecdotal, but just meeting people down here as well who it feels like the past three years, a lot of folks just had super massive career decisions based on what they really wanted out of their life, or they had no reason to hang on to what they were previously doing because what they were previously doing got completely disrupted. So I've heard some really interesting stories of just meeting people down here. And most of them are like really positive,

really optimistic about people just doing what they want to do without any hanging their hat on something they were doing before because it got completely disrupted or everything changed. So I've just seen a lot of interesting, huge career decisions made over the last three years and most of them positive, honestly. No, exactly. And I mean, I've had people, I know people in the same situation, right? They were, you know, either was disrupted during the pandemic, or they got the taste of something else. And then they kind of rethought what made them happy and what their priorities were in life. So

I think a lot of people that's actually, you know, what happened. And I mean, you can look at me, right? And you as well, both of us us so you quit your day job to focus on stratosphere and the podcast and i'm now part-time with the rest of the time focusing on the podcast and making sure i have a good balance to spend with my wife and daughter because if i had a full-time job doing the podcast i'd be working nights and weekends and would never be able to spend time with them so So you kind of have to put things in perspective. Sure, I could be making more money. But at the end of the day, you know, I guess that wasn't as important for me. Yeah, fair enough. I honestly, it's it's just been

really cool to hear these stories of people doing a lot of similar stuff. You and I are both in that situation. And now, yeah, you're seeing the retirement numbers come out. And I think that it's going to persist for a little longer, especially based on age demographics. Yeah. And I saw it with my regular job too. I saw this exact trend, more anecdotal, obviously not the same sheer volume, of course not. But I saw that we had people who canceled their retirement or postponed it. And now people are actually starting to retire because why retire when everything's logged down, right? What else are you going to do? Exactly, right? Yeah. What are you going to go do? That trip, that retirement trip you had planned,

that ain't happening. Yeah, totally. It's like, what else am I going to do? That's 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. Here on the show, we talk about companies with strong two-sided networks make for the best products. networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra

income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at Airbnb.ca forward slash host. That is Airbnb.ca forward slash host. Now, I guess we'll look at some CREA stats. So CREA is the Canadian Real Estate Association. I'm just going to do a bit of an overview here just to see, the sales to new listing ratio was very high during the pandemic, especially once we got over the kind of slowdown of the early pandemic.

It was in the 70s to 80s and even hitting like close to 90 at some points. And now it's down closer to 50. So you're seeing a big drop there. The residential prices in Canada, the average, it's not a perfect metric because the average can definitely be affected, especially if there's lower volume. It's going to be affected by either houses that sell for a lower price or the very luxurious home that sell for a higher price. But the average is significantly down. I'm just looking at the graph here. So I'm going approximately, but you're looking at a peak of around $800,000 last year to now at close to

600, a bit more than 600,000 in Canada overall. And then the last thing here that you have is the residential average price when you look at provinces. And that's not as even. So Canada as a whole is down more than in one year is down more than 10 percent, around 12, 13 percent. But it's really being pulled down by two provinces. And I'm sure people can guess which provinces they are. So it's B.C BC and Ontario. So both provinces are seeing some pretty significant decline. And I'm not an expert here, but I would kind of venture to say that it's probably located around the Vancouver area in BC and Ontario around the GTA. And then some of the other provinces you are seeing decline like Saskatchewan, Quebec, New Brunswick, Nova Scotia. But Alberta, Prince Edward Island, and Newfoundland are actually seeing some decent increases.

So I just wanted to have a look because it's been about a year now since we've seen the peak. These stats are from 2021, December to 2022. But it's a good indication. And I do encourage anyone that's interested in this to go have a look at the stats or even better, go listen to Dan and Nick of the Canadian Real Estate Investor Podcast, where they do some really thorough breakdowns on these kind of stats. So I didn't want to go in more detail, but I think it goes well with the Bank of Canada increase and such a massive rate increase in less than a year and what impact we're seeing having on the residential housing market. And last thing I'll say, it's definitely different than the US because in the US, you have people locked in into these super long mortgages,

30 years, which we don't have in Canada. So in Canada, we're definitely more susceptible to these rapid interest rate hikes versus our neighbors down south. How does it feel, Simone, being like famous and stuff? You had a tweet about interest rates go pretty viral a few days ago. Yeah. I mean, it's just funny. I just kind of tweeted because I just, yeah, I was just thinking, I'm like, you know what? It was crazy how low it was. And it was not even a year, like 10 months ago, pretty much. I tweeted it a year ago. The Bank of Canada rate was 0.25%. Let that sink in. And I don't know what it's at. I muted the thread because it was just like constantly at some point.

Oh, too many notifications. But yeah, I got like over 100K. And too much emotion. Yeah yeah a lot of people were i mean nothing like people were respectful with me it was more like there were discussions with people within the thread which is kind of funny yeah yeah with other people because i i try to respond to you know some comments when i write to something but at some point you're just like okay screw this like you just let it be this thing now officially have as a mind of its own online i responded to the tweet with a quote from tiff that will haunt him the infamous quote probably the infamous quote and that quote was if you've

got a mortgage or if you're considering making a major purchase, or if you're a business and you're considering making an investment, you can be confident rates will be low for a long time. And quote Tiff McClem, Bank of Canada Governor, July 15th, 2020. The ultimate rug pull. Now, there's many ways we can take this for sure, but the way that I interpreted it is you cannot rely on anyone's projections for interest rates, even the governor themselves. This is proof as to why I hold that opinion so strongly and why I don't weight anyone's opinion on interest rates into the future with any weight at all about decisions I make with buying individual businesses. Because time and time again,

history tells you time and time again, that one, it's impossible to predict. No one knows. And even the Bank of Canada governor and the Fed of the US, they don't know the answer, even just one meeting away, very often. And so how do you hold that with any sort of weight? I personally don't think you can. A lot of people have differing opinions on this. This is just my opinion. And this is why, right? This is exactly why this quote that ultimately will be etched in stone for his career. Yeah, Tiff McClain, the financial advisor. Yeah, exactly. What benefit did he have by saying something like this? Like a major purchase, a major purchase is something that you're going to make once or twice in your lifetime. chains and then when the economy started reopening where people you know prices got bid up for things

that were in short supply because there was one higher demand you know if you wanted to buy like an atv or bicycle or whatnot i mean good luck because everyone wanted one because there were higher demand for these specific products and then when you know clearly the supply chains on top of that made the the price exasperated everything and then move along about you know six months to a year then that demand shifted to services and experiences and then you got inflation that got up for those type of goods and services in the economy so they definitely miscalculated that. I mean, I don't think there was a lot of people that saw that happening, but it was definitely a bit reckless at the time to make that statement. I think there would have been better ways to approach it and, you know,

maybe not keep the rate so low for so long. Would it have been really that bad to have it at 1% instead of 25 basis points? You just don't give yourself much margin when you have it that low. Yeah. Agreed. All right. Let's move on from the macro end into the micro where I feel like this podcast thrives, where I feel like we can provide a little bit more value as well. We're going to be talking about earnings. We're going to cover today, Amex, Roper, and I'll finish it off with some quick

thoughts on Spotify's release from this morning. And the rest of this week is a big one in terms of large caps. We've got Meta, Thermo Fisher, Apple, Google, Amazon, just to name a few. Sometimes it lines up with the pod as we were talking about, sometimes it doesn't. But next week, we will cover these as well. So that's the best part about this podcast. It's twice a week. We get to it eventually. And because I just have two on the docket here for earnings, I wanted to bring up an interesting piece of news that came out, which is Hindenburg Research, a well-known forensic research shop and well-known short seller. Their latest target is Adani Group, the Indian infrastructure company. Ad Donnie group posted a report called, How the World's Third Richest Man is Pulling the

Largest Con in Corporate History. Those are fighting words. Now, Simon, let's play a clip from the pod of last September. We recorded on September 20th, this episode. It was called the second richest person on earth talking about the Adani group. And let's hear what I had to say in September of 2022. Okay. They say that their sectors they cover are energy and utilities, transportation, logistics, incubation. I don't know what that means. Airports, materials, and then their companies, which are all publicly traded. You got Adani Enterprises. So think of that as like, bam, the mothership. Adani Enterprises, and then you got Adani Ports, Adani Green Energy, Adani Total Gas, Adani total gas, Adani transmission, and Adani power. So you're like a lot of core

infrastructure, power assets, nat gas, renewables, and they're all publicly traded, similar to the Brookfield move. And some of them are worth like in USD 50 billion and stuff. So they're not small, utility ports, airports, core infrastructure, transportation infrastructure. But it is a bit of a head scratcher how the stock has gone absolutely parabolic. Either I'm missing something or it's a bubble ready to pop. The flagship Adani Enterprises, and I'm not sure how they're all connected, but it's not really growing. It's a big business, don they're all connected, but it's not really growing. It's a big business, don't get me wrong, but it's not growing the top line consistently.

And profitability-wise, it's a roller coaster. And it's not like those other assets are growing extremely fast. I mean, I'm sure they're growing quite fast given so much of India does not have this core infrastructure yet, even still. So they still have a big runway for growth. But I think that this thing's due for a ridiculous correction. There it is, folks. You heard it here first. I wasn't calling it a fraud or anything, but here are the points, the major points from the Hindenburg report on Adani Group, calling them the largest con in corporate history. Here we go.

Today, we reveal the findings of our two-year investigation presenting evidence that the $218 billion USD Indian conglomerate Adani Group has engaged in a brazen of stock manipulation and accounting fraud schemes over the courses of decades. Gautam Adani, founder and chairman of the Adani Group, has amassed a net worth of roughly $120 billion. Even if you ignore our key findings, take the financials of Adani Group at face value. Its seven key listed companies have 85% downside purely based on fundamental basis and sky-high valuations. Evidence of stock manipulation in Adani listed companies shouldn't come as a surprise. SEBI has investigated and prosecuted more than 70

entities, individuals over the years, including Adani stock promoters for pumping Adani Enterprises stock. Now the report goes on and on and on to talk about this, but I just pulled some particularly about the stock promotion and the ridiculous valuation that makes no sense. That's like, you know, one of the top important parts of Hindenburg's report here. Any thoughts on this? I mean, I just mostly saw the headlines and I know you had talked about it. I'd have to read the report to fully understand what the allegations are. I'd have to read the report to fully understand what the allegations are.

Obviously, there seems to be something fishy here, but I don't want to take any bold, uninformed take on it just because I don't have all the information. And hopefully, I'll get the time to go over at least the most important part. I'm sure they have a bit of a summary too. They have an executive summary, which is about 15 to 20 bullet points. Probably could read it in like 10 minutes. Yeah. That just kind of goes over like X, Y, and Z of why this thing is blatant stock promotion. So my 10 minutes of research on Adani Group for the podcast back in September was like, you just heard the clip. Either I'm missing something or this is an artificially inflated stock. And of course,

I'm not going to call it out as fraud on the podcast for 10 minutes of research. And I don't want to lawsuit, you know, so there's smoke, there's fire though here. And Adani replied with an over 400 page paper, 400 pages as a rebuttal very quickly, like within a day or two, defending themselves in itself. This is a red flag that they're going through these efforts and they're that quick on the pulse and on the trigger to defend themselves. It's something you do if you're guilty, you know? But hey, that's just what I think. The other red flag is how their defense is mostly, mostly, especially like in the executive summary in the title, is about how this is an attack on India itself from Hindenburg.

As a company and people who represent the infrastructure and one of the largest companies in this country, it's like, how is that relevant? And also something someone guilty would say. Let's see how it all shakes out. I don't know the truth, nor have I read the 418-page rebuttal corporate document from a Donnie group. I'd honestly rather watch paint dry. But regardless, love the drama. And I also want to bring to light short sellers and the fact that they're not bad people. Because new investors who started in the GameStop era, short sellers are villains. Short sellers are evil. They predicate on people losing money. When in reality, most of them are digging into corporate frauds, exposing bad actors,

and they need to and should be compensated for this in the way that they do to keep a healthy market. Because sometimes those incentives are better at regulating and keeping people honest than the incentives of regulators, for example. And so I wanted to bring that up as well, because short sellers have gotten a bad name over the past two years, when I think that they're a very important organism in the ecosystem when it comes to public companies. Yeah, regarding short seller, I probably have a more nuanced view where there's more to me. There's definitely some good value, especially those who expose frauds like this and we saw it with Valiant I know there was a Netflix documentary on and there's tons of different

frauds that were exposed and I think one of them was even can't remember his name he's on I follow him on Twitter but I can't for the life of me think about it right now but he was dumbing the drum on ftx as well you know several months before it actually went down uh but there are some short sellers that sometimes you do scratch your head that they're really trying to bring dong bring down the stock just to profit out of it so i think there's you know it's hit or miss in my opinion but definitely they i agree with you that a lot of people tend to think it's all bad when that's not the case. I think there are some good short sellers. There are some that have definitely an agenda. And whether they're really truthful in the facts, sometimes it's a

bit, you can question that, but there's a lot of good ones that do uncover frauds as well. Yeah, good point. I mean, there's nuance to this conversation on multiple levels. I just think that they've been known as the villains since the GameStop era, when in reality, some of them might be, but a lot of them aren't. And I think that that's somewhat important to recognize because a lot of them aren't. And I think that that's somewhat important to recognize because a lot of them are doing really great, honest work. And I'm not saying that Hindenburg's the best or any of these short sellers are great. But the fact that they are doing forensic accounting into potential, potential frauds is a good thing. Yeah. No, definitely.

is a good thing. Yeah, no, definitely. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission-free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is

questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying

your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. Now, so we'll move on to earnings. And by the way, you left one out that I'll be doing as well, Whirlpool. Oh, Whirlpool. Yeah, Whirlpool, which is actually pretty interesting, the results. So I'll get to that one towards the end. I like when you bring this one up because it's so tied to the housing market. New builds and res redevelopments. Yeah, no, it's going to be an interesting one.

So I'll start off with American Express. So we, well, you mentioned, we talked, but you mostly talked about Visa and MasterCard with their earnings last week. For those not familiar with Amex, it's definitely different than Visa and MasterCard. I mean, they have some similarities, but some differences. First, Visa, MasterCard are card networks and get a small fee on all transactions. They do not issue the credit card. So if you have a TD Visa card, the card is issued by TD, not Visa. So they're not a bank. With Amex, you actually have a hybrid, I would say, between a Visa, MasterCard and a bank. So they are a chartered bank in the US and they do both.

They have their own network like Visa and MasterCard, but they also issue their own cards. They also work with issuing banks as well. So that's why you'll see some Amex cards that are solely American Express, nothing else on it. Those would be issued by American Express, but you'll also see, for example, a Scotiabank Amex cards that are solely American Express, nothing else on it. Those would be issued by American Express. But you'll also see, for example, a Scotiabank Amex. So this one would be issued by Scotiabank. So let's, having said that, let's have a look at how they did in 2022. Network volume was up 21% to $1.56 trillion.

I know it might sound like a lot, but for context, Visa does about nine times this in terms of volume. International network volume was up 23%, which is a good indicator of travel here. Total revenues were up 25% to $53 billion. Net interest income was up 40% to $12.7 billion. And that net interest income is because they also act like a bank so that's where it starts being different from Visa and MasterCard now another thing that's specific to banks credit loss provisions these were massively up last year they had released 1.4 billion whereas this year they added 2.1 billion to those reserved and that was1 billion in Q4 alone. Total expenses were up 24%, which is in line with revenue increases here. A lot of it was due to some of the rewards that

their card holders claimed, a lot of travel rewards, a lot of marketing as well. So something to keep in mind. Net income was down 7% to $7.5 billion, clearly affected by that credit loss provision that I just talked about. They continued to buy back shares. Share count was down 5%. And they expect revenue to grow between 15% and 17% in 2023. And they said that they are well positioned to grow earnings per share in the mid-teens longer term. So it's actually a name. I think we may have gone over them once or twice in the three years of the podcast. Not a lot. We don't do it very often

because we don't own it. But that's actually a name that I find very intriguing because it gives you almost a hybrid, like I said, of a Visa, MasterCard and a bank. And it's a company actually that I wouldn't mind owning. I'm not a big fan of bank, but because of that network that they have, and I know it's not accepted everywhere, but it's definitely very interesting. And clearly they're doing something well. And I was looking at their valuation, and it's kind of funny. Their valuation kind of goes up and down

if you're looking at price to free cash flow or price to earnings. And it's definitely towards the low end of that tendency over the past 10 years. So something to keep in mind. Clearly, you know, there could be some headwinds in the short term, especially with those credit loss provisions. If people get into debt, there's, you know, you know people well people have already some debt and they have trouble paying their balances on their credit cards and it could definitely affect american express but uh one name that i may be digging into a bit more into it because i it's very intriguing again such a brilliant company as well uh it's just different and i i like the model less than visa and master

card but that's not to say that it's not a brilliant company and and a brilliant model um and and the brand that they've built as well that kind of ties into it it's just like world class right like truly truly world class i know buffett's owned it for gosh i don't know i think he owns a long time now yeah i think he owns like 20 percent of it something ridiculous like that of the company yeah i can actually check on stratosphere you just type in dude so cool you can just type in warren buffett and uh get his his portfolio so american express is 6.91 percent of the public stock portfolio today and uh you're right he owns 20.13 percent of american express the company um pretty and it's not a small business either like i know it's not as big as visa and mastercard but

this is 130 billion dollar market cap business so it's not it's not your tiny business it's done in a real buffett way to just bought uh if i'm if i'm reading the data correctly here bought 151 million shares and then hasn't done a thing since like truly collecting that just truly the most buffett move um very cool no i i wouldn't i wouldn't hate owning it either i i just personally like the model of visa mastercard it's just a little better and that's also because i don't understand banks that well so um it's a little out of my competence. All right, let's talk about Roper, a stock I've owned for years now, another roll up from a wonderful management team in the technology sector. Think of like Constellation Software,

but much bigger acquisitions generally, and not always like niche critical VMS, vertical market software. We're talking big acquisitions, like $5.35 billion USD in 2020 for a company they bought called Vertifor, which is an insurance technology company. The investment thesis that I had was one, I like sticky software rollups. That is no surprise. They grow by acquisition and they spit out tons of cash. And two, this was an acquisition machine that was undergoing a pretty significant pivot. And the multiple I'm paying at the time feels like it's still valued as a sleepy industrial roll-up and not a portfolio of technology companies, and particularly

software application technology companies. They've sold tons of assets and reinvesting cash into this new focus. I'd say it's worked pretty well in my view, and I just wish that I've owned it for longer. If you look at the stock chart and you look at the dividend growth over time, I just wish I've owned it for longer. Now, results for the full year 2022, revenue increased 11% to 5.37 billion. The interesting thing here is organic was 9% of that, which is really, really impressive for these types of companies. Diluted earnings per share was up 22%. EBITDA was over $2 billion.

And they completed that divestiture of three businesses, the majority stake in its industrial businesses, including its entire process technologies business, and a bunch of their measurement and analytical solutions segments. So think of industrial pumps, a lot of hardware, stuff like that. They've divested a lot of it for a pretty similar EBITDA multiple for what the business trades for on the tech side. So very advantageous what they did. I've paraphrased this and simplified this because they sold over 10 companies in 2022. Now, this is the new folks for them, paying up for high quality software. And as a result, I track the application reporting software, the application software reporting segment the most. This is where they've deployed the capital and this is where they're seeing the nice top line come from. CAGR on application

software operating profit is 20.66% since they started the segment. Everything's tracking pretty well here for me. This is a fairly large business traded on the US exchange and happy to own it for a long time here. If you look at the dividend growth, this is the definition of yield on cost. And I hope to be the benefactor of that in 10 years to come. Yeah. And for those not familiar with CAGR, it's just the compound annual growth rate. So if we have, I know we always have some new listeners at the beginning of the year. So that's 20% is very good. So I'll just say that that's quite high. Nothing much to add here. I think it's a business that I've kind of known through you. And it looks like a pretty good business, just like a consolation, I guess, on a bigger scale so moving on to uh Whirlpool that I

mentioned so they released their full year here so this is a very interesting name because like I we mentioned it here before it's a good gauge to see where the economy is and specifically when you look at you know homes new homes being built even people moving to new or you know, homes, new homes being built, even people moving to new or, you know, buying existing homes, for example. It's something oftentimes that people will buy appliances, which Whirlpool produces. And the Bank of Canada even mentioned that large household purchases were slowing down. And we can see that too, in the data in the CPI, so released a couple weeks ago. And Whirlpool is definitely an interesting case study since they make appliances. And we'll see that it wasn't a great year for Whirlpool here. So revenues were down 10% to $19.7 billion.

Gross margins were down more than 400 basis points for the year. They also had a loss of $1.5 billion versus profits of $1. points for the year. They also had a loss of 1.5 billion versus profits of 1.8 billion last year. However, I think it's important to me to mention that a large part of this was a write down of their European, Middle East and Africa appliance business, which was done in the fourth quarter. They will form a new Euro-focused entity with Turkish household appliance manufacturer arcelic i'm probably butchering the name here i wasn't familiar with them whirlpool will own 25 of the new entity while arcelic will have the rest and the combined entity is expected to have

6 billion euro in sales annually the good news is they still generated more than $800 million in free cash flow for the year, but that's a 50% haircut compared to 2021. And they bought back $900 million worth of stocks and paid $390 million worth of dividend. That I don't like to see. These figures here when you only produce $800 million in free cash flow. And the other thing I noticed, which is a bit of a red flag for management here, not sure why they are buying back $900 million worth of stock when their debt went from $5.2 billion last year to $7.5 billion in 2022. So what that tells me is that the returning capital to shareholder, they're fueling this with debt, which I don't like to see. They still generated a decent amount of free cash flow. I don't understand why management just adjusted those share buybacks, especially when you do share buybacks. Usually what businesses will do is they'll authorize, the board will authorize to do a certain amount of share buybacks

over, let's say, a year or two years. But they're not forced to do that. They are authorized to do a certain amount of share buybacks over, let's say, a year or two years. But they're not forced to do that. They are authorized to do so. So this, I don't know the management well here, but this is something that really stood out and something I don't like to see, especially right now with higher interest rates, why you're getting to more debt. I mean, the rates were going up this year.

They would have known that. So that's just my take here. No, and I think that it's a valid take, right? It's like, how many of these companies do we talk about that are just kind of humming along? They're not growth plays. They're just there. They don't look particularly cheap. They're just there. And how often is the capital allocation strategy just like, I don't get it. I'm not an insider at Whirlpool. I own the stock. But surely there has to be someone in the boardroom going, is that what we're supposed to be doing?

Capital allocation wise, you know, like it doesn't make any sense to me. I don't get it. Yeah. I don't get it either. It's just, I don't know.

I don't understand why, like I get why a company would not want to cut their dividend. Yeah. In some cases, I think we talked about Intel, like to me, that's a no brainbrainer to cut it, but that's another discussion. We can probably do an episode on this on a deeper dive on Intel

because I think a lot of people would like to hear our thoughts on that. But a company here, keep your dividend. Intel is either the greatest turnaround play about to unfold or the greatest value trap ever. And I can't decide which one it is. Yeah. Yeah. But at least Whirlpool, right? Like there's nothing game changing about appliances.

I, you know, I've had some of their appliances before. They're good appliances. There's nothing bad against them or anything. But it's just, you know know you could have kept paying the dividend just don't do any share buybacks like what's the big deal like i get why you don't want to cut the dividend but just like it's just unnecessary to do share buybacks in my opinion using debt for a company that's unfortunately going to be cyclical that's just the nature of things i used to rent a place that had a Whirlpool laundry and dryer. And it was like the norm that it was broken.

And it was brand new. I was like shocked when it worked. Yeah. It's like, oh my God, my clothes actually cleaned themselves. This is amazing. I don't have to call the Whirlpool company. This is, of course, anecdotal. I have no idea if they're actually good or bad, but that was new, and it didn't work

like 99% of the time, so that's not good luck. Let's talk about Spotify. Spotify, they reported this morning, and you know what? I think the last eight quarters, I had listened to the call or at least caught up on the earnings as a shareholder. And this is the first one in a while that I read it as not a shareholder and just a fan of the product. And boy, it felt so good. Not the part where the stock is up pretty nice today. That part was like, oh shit. But the fact that their gross margins continue to be a, I don't even know what to call it.

Hard to watch is what I would call their profitability margins and specifically gross margins. Because when I sold the stocks, what I said was, I can no longer watch my investment thesis be wrong about the gross margins ticking up because it has hovered at 25% for 12 quarters in a row, plus or minus a basis point here. And the market goes nuts if it goes up like 1% and then you zoom out and it's back to the 25%. It's like, how can this business model actually work? And I got to give it to them. Monthly active users up 20% year over year, beat their own guidance, beat estimates, premium subscribers up double digits, ad-supported monthly active users up 25%. Great. The top line, user growth, premium subscribers. This is wonderful. Tracking

exactly how you'd want, but the unit economics are not changing. They're just not changing. are not changing. They're just not changing. And if you look at it by segment, the music side is actually expanding margins slightly and podcasts are dragging it down. And podcasts has been, and their ad business has been what they can point to as a way to expand profitability and grow their margins. And it's actually what's dragging them down. So I was just so glad to read this. And I felt like I matured as an investor because the stock had popped up quite nicely. And I was still really happy not to own it because the reason I sold it is the reason why this business is not working. And so I felt like I had matured as an investor reading this report, even though the stock was up big. Yeah, yeah.

I mean, it feels like they're kind of throwing a lot of stuff at the wall to see what sticks and is profitable. Yeah. I can't understand why they put more emphasis on podcasts for a while. At some point though, when do you not pull the plug? Because I think it's a good platform. I'm sure a lot of your users would,

I don't know if they would stick to the platform now if they really stopped the podcast content. So I don't think that would be a good idea at all. But at some point, I mean, I know Amazon Prime Music, content so i don't think that would be a good idea um at all but at some point i mean i know amazon prime music um they're put making push apple music and stuff like that and i think i do question the pricing power for spotify because i think you have these you know it's a bit of pain to switch yes you have your discover weekly and all that stuff and the show you follow but if the

price discrepancy becomes starts being too wide I think there is a point where people just say well I can get the same thing somewhere else so why am I sticking with you yeah it's going to be a pain to do it might take me a couple hours or you know slowly add the the music I like and so on but I'm going to be saving what like 10 bucks a month 100 a year whatever it is So I think that's where it gets a bit difficult. Whereas you look at a Netflix and streaming video, which has its challenges, don't get me wrong. It's not a perfect business model either. But at least they have unique content where that's not really the case for Spotify, with the exception of like a Joe Rogan and things like that.

Right. case for spotify with the exception of like a joe rogan and things like that right they did come out and say that their strategy is no longer going to be about those big blockbuster moves um one it's expensive and two it's really hard to to justify and they've also said that they're gonna stop spending money on incubating new shows um and that it's a really hard game. And they even said, quote, they'd rather be the YouTube of audio, partnering with creators and making sure that the creators in the space are making money

and that they can have a cut on that money, of course. And I think that that's generally the right way to go, I guess, but you're right. It is throw everything at the wall. And I guess that's what I like about the management team as well. It's founder-led, high insider ownership. I like that. Even as these huge companies that the founder is still running it and still experimenting

it, that's what you want. You want that entrepreneurial spirit in these big public companies as well, but it's also just so hard to follow what actually will drive any sort of operating margin long-term. them that they've tried that I said, they can do this, they can do that. I wrote down a whole bunch of them because I used to be a shareholder and they've done them all and none of them are working. It's clearly working on the product side. It's clearly working on growing MAUs and the top line. Those things are working. But when does it trigger to operating leverage? I'm out of ideas. I'm personally super out of ideas. Yeah. And I think it's a good lesson for people as well, right? Because there's Peter Lynch that would say, invest in what you know, things that you use, but you have to remember, it's not always that you have a really good product that it's necessarily a great

business. I think that's important for people to remember. Like I like Spotify as much as the next person. And I think there would be a point where I might actually consider the alternatives if the pricing becomes too high for sure. It's not at the point right now, but I think it's just good to remember that. Yeah, the product may be awesome, but it might not be a great business. It's just a reality. And I think it's just important to remember. I mean, I love Apple. It's a great business.

Yes, there are some great products that are great businesses, but it's not always the case. That's right. And it becomes hard to separate the two at times. Yeah. Nothing more to add there. I agree with you. I'm rooting for this business as fans of the product and the company and what they can do and the millions of avenues of optionality that they have to grow the business and potentially profitability. But for now, I am happy that I sit on the sidelines. Yeah. And I'll just add one last thing I was thinking, because obviously, you know, everyone knows we have a podcast if you're listening to this. And it's kind of funny how I'm always surprised. I don't know about you, but we still get I I think Apple Podcasts is still the predominant listening, you know, plays that people listen to our podcast. Yeah, I'm looking at the stats here and it's more than 50% that it's Apple Podcasts. And Spotify is second place, but a distant second out of around 20%.

So it kind of shows you that maybe that podcast push, which has been a few years at the very least now, hasn't been probably what they expected. And I see these numbers and every time I see them, I get surprised. It's kind of like I forget. I always expected to be higher on Spotify. Yeah, let's tell the people. So for our podcast right now, the analytics on a trailing 30 days are 50.4% Apple Podcasts, 22.3% Spotify. And again, this fluctuates on a 30-day, but here's just an idea. Apple Core Media. So I think this also includes Apple Podcasts.

So that's another 15%. Google Podcasts at 4.4%. And then the long list of other ones, there's CastBox, Overcast, Podbean from our website that rounds out the last 7.1%. So it's basically a two horse race, but Apple having that distribution, owning the hardware remains king. Yeah, yeah. No, I just I as we were talking, it just kind of clicked. And it still amazes me that Apple is so high for whatever reason.

I always think Spotify, but that's probably in a nutshell. It's not a huge sample, of course, compared to the millions and probably billions of downloads they get for their podcasts overall. But I think it's a good overview, probably gives you a decent idea of why they're probably kind of taking a bit of a step back here. Yeah, it's crazy to think too, right? Because if you're talking about unit economics, our podcast is like the best business ever when it comes to unit economics. It's like, how can you not make being part of this ecosystem profitable? And so I guess it remains to be seen. We'll keep watching it. And if anything changes, I reserve the right to change my mind when the data does

change. Thank you so much for listening to today's podcast. We massively appreciate you. We massively appreciate you. We are here every Monday and Thursday. You can follow us on Twitter at CDN underscore investing. You can support the show and see our portfolio updates every single month at join TCI.com. And if you want to see our website, it is thecanadianinvestorpodcast.com. That is thecanadianinvestorpodcast.com. We'll see you in a few days. Take care. Bye-bye. The Canadian Investor Podcast should not be taken as investment or financial advice.

Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.