The Canadian Investor - Are Big Tech Stocks Getting Cheap?

Episode Date: May 2, 2022

In this release of the Canadian Investor Podcast, we cover the following topics: Valuation of big tech stocks which are significantly down since their recent highs Accumulating wealth over the long term without getting lucky We compare market cap ETFs vs. equal weighted ETFs and reverse market cap ETFs Tickers of stocks discussed: SPY, RSP, YPS, AAPL, GOOG, PYPL, NFLX, FB Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Blue Jays Sign up link 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. Check out the Yes We are Open Podcast from sponsor MonerisSee omnystudio.com/listener for privacy information.

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

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My name is Brayden Dennis. As always, joined by Simon Belanger. We have a fun episode for you today. If you're new to the show, Monday, we talk about regular investing concepts, what we're seeing in the markets and our strategies for investing in the long term. And Thursday mornings, we talk about earnings and earnings season is in full swing. So you're going to have to tune in to the episodes over the next few weeks there's lots to talk about and lots of exciting results simon i'm seeing here uh first topic here on the slate i looked at it and i was like did i write this this is something that i would expect

to be bringing to the show today but i was really happy you did yeah i figured you'd be happy when you saw that i actually texted you i'm not happy when you saw that. I actually texted you. I'm not sure if you saw that, but I'm like, oh, you're going to like the topics I'm doing today. Yeah, I know. I saw that. And you and I text back so much now I kind of forget. But yeah, no, I really like this. Yeah. So the first segment we'll do is about technology stocks really getting hammered, but especially big tech here. And it's starting to look pretty cheap and attractively priced. So after the 4% drop that we saw on the NASDAQ yesterday, it's now down more than 20% for the year. Needless to say, there are starting to be some really attractively priced growth stocks. I saw a tweet that really inspired me

here about big tech P ratios and how cheap they have gotten. For those who are new to the show, P is just price to earnings ratio. And this is relative, of course, but I wanted to dig a bit more and do a segment on it for the podcast. This is not all big tech, but I took the names that were under 30p. Just something like, you know, there's no logic all that much behind it. But typically for big tech, and you have companies that are still growing pretty fast under 30p, I think most people could agree that it at least is priced pretty reasonably. Would you agree with that? Yeah, especially with the fundamentals, the margins, and the growth rates, and just the quality and the stickiness of what they provide.

Yeah, anything under... I typically use like EV to EBITDA, which is a very similar type of metric. And you're getting like Google at like 19 and a half times ev to ebita and and a lot less than next year's ev to ebita it's it's really hard not to say it is at least more than reasonable yeah exactly and there's a bunch of different metrics but i think p is just the most commonly used out there so that's why i decided to use that one. So the first one, Microsoft is currently trading at around 29 PE. Apple, 25. PayPal, 24. Google, 21.

Netflix, 18. And Facebook, also known as Meta, at 13. And for context here, the average PE of the S&P 500 is 21 right now. So you actually have some of these names that are trading below that. And of course, it's just one valuation metric like Brayden just mentioned. There are some other ones out there that you can use. And oftentimes it's good to just use more than one to get additional context. And you can also look at their price to cash flow or free cash flow. And most of them look pretty reasonably priced as well in those metrics. So even their price to cash flow or free cash flow, and most of them look pretty reasonably priced as well in those metrics. So even their price to sales have gone way down, and these companies have

grown their sales at an impressive clip in the past five years. Microsoft, it's an average of 12.6%, Apple 8.2%, Google 21%, Netflix 25%, Facebook slash Meta 30%, and then PayPal 17.6%. And of course, the question here is how will they fare going forward? And clearly, there are big question marks here for some names. I'm thinking specifically Netflix, Meta, and PayPal. We talked about what happened with Netflix last week and their loss in subscriber. We know Meta is going into a big shift in their business. They're also experiencing some headwinds when it comes to their ads.

I think part of that they mentioned is because of the pretty new privacy settings on Apple devices that are affecting how their ads are targeting their audience. And they're clearly betting a lot on the metaverse going forward, which is a big shift for them and raises a lot of questions. Before I go on, did you want to chime in here? Just for fun, I was looking to see how far back can I go and you've got no return on Facebook stock with this huge drawdown. I found the day. So today, Facebook trades for $174 USD for the share price. It traded for $174 USD on December 1st of 2017. And so that's been a lost five plus years and well, not quite, but very close. And their revenues have probably more than doubled since then. Profits have exploded since then. And so the business fundamentals have massively increased. But again, investors are always looking forward. They're looking at the

probably no joke, hundreds of billions of dollars they're going to spend on the metaverse project, which could turn out to be the range of outcomes on that. What are they? It's so wide and so hard to extrapolate. And then the ongoing concerns moving forward that you mentioned. And so some of these companies are in a weird place. However, I also look at this list and I'm like, Google is just dominating, dude. The search business is still growing close to 30% on revenue. What is going on? Why is it trading so cheap? And cheap and so yeah i think we're going to talk more about that here in your segment yeah and you can find warts for any company that you look at right it could be the best company in the world whatever it is you know there's always going to be

you know if you want a negative thesis for it you'll be able to find it if you dig deep enough and meta i think meta probably has the most question marks here because I didn't even mention the regulatory standpoint as well. That's been ongoing since pretty much the 2016 elections in the U.S. It's been really on the spotlight. Probably the most focused on in terms of regulatory concerns. I would probably put in Apple and Google in there as well. But I think Facebook has really been the poster child. And then PayPal, of course, I own PayPal and they've had a lackluster end to 2021.

And their guidance for 2022 and beyond was below expectations. They're also shifting their focus to increasing engagement for the existing user base versus a pure user growth strategy. And that was a big shift that the market didn't really like. And we're clearly seeing that in the stock price here. So there are some unknowns for these three businesses, but even for Microsoft, Apple and Google, they aren't without faults either. But there are there's nothing major in my view in terms of headwinds going forward you might disagree with me on that but yes there's always some regulatory concerns like I mentioned but there could also be some impacts for Microsoft we talked

about their Activision Blizzard acquisition it's a big price to pay for Activision Blizzard will it pan out I think it will but again they're taking a big bet here with that acquisition hopefully they've calculated things correctly but again whether you like big tech or not I think it's really hard to argue that these valuations are not starting to get very attractive even if you're seeing some slowing growth for some of the names, I know Google released their earnings. I think YouTube and some, you know, some results were little below expectations, but they're still growing in the low 20% digits, right, in terms of growth. So I think it's hard to, I don't know, it's still, it sounds pretty attractive to me. to, I don't know, it still sounds pretty attractive to me.

It sounds very attractive on the surface. And again, like you mentioned, there are a bear case you can make for any business. And I think that there's a lot of pessimism out there. And the bear cases seem to be, you know, getting more attention than not. And that's what happens when you're in a market drawdown. The narrative becomes shaped by price sentiment, right? And it compounds on itself. And so I think, you know, firmly, I can say a lot of these things are trading quite attractively. Now, I don't own meta or Facebook stock, whatever you want to call it. But it is important to know this, just what we're

talking about, how much the narrative and sentiment drives the share price. Just for fun, again, I've gone on the type in Facebook into the Stratosphere platform here, and we cover it. So there's these specific metrics. And I was just talking about how it trades at that December 2017 share price. And revenue has gone from about $40 billion to almost $120 billion during that time. So it's close to tripled. ARPU, average revenue per user, has gone from $20.21 to $41. So, you know, the monetization has more than, you know, close to doubled on that. Now, MAUs have been, you know, decelerating, but still growing because, you know, this like rest of world segment and the Asia Pacific segment continues to grow really, really quick. I think

there's been lots of growth for them in India, especially across like WhatsApp and stuff like that, right? Like the MAU's number continues to go up. But, but, you know, the question is, okay, that was last decade. What about next decade? And these are the questions that people continue to have. And many of these names are going through a very, very quintessential classic example of from growth to value. And that happens in maturation curves almost across the board. The weird part here is how fast they're still growing for something going from growth to value. It is the quintessential transformation, but a very not normal example from the fundamentals. And when you're looking at the top line and user growth and average revenue per user,

I'm using this Facebook example, but I think you can extrapolate it across a couple of these names. It's very strange. It's peculiar. Yeah, yeah. And i mean i think netflix is the fresher one of all of them because you know all this bad news came out recently for netflix and clearly there's a lot of unknowns going forward we talked about it for netflix how are they going to be doing in the next five years in a world where there's a whole lot of competition for streaming? Will they be able to monetize some of the people that are sharing accounts if they're starting to crack down on that? How will they execute on a paid ad version, so a cheaper

ad version version of Netflix? There's a lot of question marks here, but there's definitely some potential value in Netflix, but all of the names that we discussed too. They're going through a similar problem. I mean, it's a problem, but it's also a growth lever you can pull of like non-compliant users. Autodesk knows all about that. And they're probably going to try to steal some talent from Autodesk. I hope they don't succeed as a shareholder, but they know all about that. All right, should we move to the next segment? Any other comments on big tech? I agree wholeheartedly with your sentiment though. It feels, in italics, feels very cheap. Yeah, I think that's my sentiment too. Again, it could go down from here, so don't start pulling the truck and buying all these names thinking that it can

only go up. There's a lot of uncertainty in the markets and it's extremely volatile right now. So it's not impossible that it just keeps getting more attractive from here for the short term too. Yeah. And you got to take a step back and think about, if you're buying it here, do you want to own it for the next 10 years? And if you do, it's probably a good entry. if you're buying it here, do you want to own it for the next 10 years? And if you do, it's probably a good entry. 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. All right, let's move on to the next segment here. One I've been meaning to do, which is called how to get rich without getting lucky using a regular

nine to five job. So it's the nine to five to wealth. You know, it's this kind of unsexy, but works plan. And then I'm going to talk about my situation, what I was doing before I decided to start eating dirt and ramen. So we'll go into those details. So I mean to do this, it's kind of how to get rich without getting lucky. Full disclosure, I am a six-figure portfolio guy, not a seven-figure portfolio guy yet. I'm not trying to be some poser here on the internet. i'm not trying to be some poser you're on the internet i'm not trying to be one of those chumps frankly i don't care i don't what anyone thinks i've seen it so i can vouch for that it's not it's not seven uh seven digits uh yet and it's

it's closer to the bottom end of this hey hey come on now it It's okay. I'm not far. Like, you know, I'm pretty close to you too. So yeah, it's good. I just want to disclose that because you know, I'm not trying to pretend like I'm something I'm not. But I am only 26 years old. So there's that. If you include my equity and stratosphere, I am an on paper millionaire at the valuation raising capital. But this is besides the point. Trust me, startups are hard and eating dirt and ramen is probably the most likely path before you get real traction. So yeah, my situation is not unlikely. For example, I look here and my two corporations today, Simon, do like in April, do a top line revenue of like $25,000. And I don't pay myself. I just reinvest all of it. So this is a very different situation from my segment here. Let's talk about the situation before that, before I quit my job

on this nine to five to wealth. On May 10th, 2021 was my last day at my full-time engineering job. Recording this, you know, a couple of weeks out from that, from going around one year. I had a sure plan, sure path, seven figures, and I'm going to break it down into simple steps. These are of course always easier said than done, but the only actual ingredient that is required is patience. And that is the absolute requirement for pulling this off. All right, step one, super scientific. Let me tell you about this one. Spend less money than you make. Groundbreaking news, right, Timon? Yeah, yeah. And I would say the other ingredients is probably discipline. Yeah. Okay. I think those kind of tie together. Okay. So what I do is I look at the heavy hitters

that I'm spending on. I literally use a spreadsheet. I don't use any fancy tools. I go on a spreadsheet. I look through my banking statements. What are the heavy hitters? Is it that $900 lease payment for a BMW that doesn't even make your life better? If it does make your life better, then sure, go off. But my extremely unsexy, red hot Nissan Rogue gets me to the golf course in the same fashion that the BMW does, right? The golf course brings me happiness, not the transportation. Come up with a savings rate number. When I was doing the nine to five thing, I was at about 35%, which is pretty good. I would even hit sometimes 40% savings rate, but I was saving pretty aggressively. So do what you

will with that. This plan works with much less, but it doesn't work if you're not actively trying to spend less money on stuff that doesn't make you happier. And I know that you're quite good at this as well, like savings perspective. Yeah, I know. I do that too. And I've always, I think I mentioned it before. And usually I find when I want to buy something is first, do I already have it? If I do, when I want to buy something is first, do I already have it? If I do, then chances are I don't really need it. If I don't, then, you know, I look to buy it. But specifically, if I need it, a lot of stuff, you know, you ask yourself a question, you know, I want to have that, but do I need it? And oftentimes the answer will be no. So I think just asking yourself those questions goes a long way. Again, I think everything in life is about balance.

So you want to also enjoy your life as you're able to enjoy it. But I think it's just creating that balance. Like Brayden said, BMW is nice, but will it really make you happier? And you'll probably be able to save quite a bit of money if you go with a slightly more affordable option. Yeah, and dude, if you're saving more money too, you have money for trips, like trips are way more fun than any material stuff. All right. Step two, regular contribution to your brokerage account. Sorry. So you've completed step one and now step two. And again,

for most people hearing this, like this is super elementary stuff, but it's helpful to remind ourselves of what's possible with patience. Set it up in your bank. You do this regular contribution. It's so easy to set up and you just do it without thinking. You don't even have to go to your bank and do it manually because you set it up once with a regular amount and then it just goes in there okay

the key here is that you're moving it to a self-directed account you know ideally investing in high quality stocks like the ones listed on stratosphere or with low-cost index funds ideally etfs if you're going to go that route the reason for i that i say this is it fails quite miserably if you're paying mutual fund fees or paying high fees in general for money management. And it can be done with someone else doing it. I'm not hating on professional money manager. It's a good profession. But if you're paying a lot of fees to an advisor, you're going to compound a lot to an advisor you're going to compound a lot slower and you're going to require a lot more money to hit your goals so let's just let's just clear that

up so i'm using nine percent here in my scenarios that i'm going to go through because that's basically market returns you know historically the s&p does about 10 if you're paying high fees it's going to be a lot less than this. And that's why when you go to a financial advisor, they'll throw around like 6.5% in your modeling. It's because that's what you're going to get after fees. So just think of that, right? My auto deposit is set for the 25th of each month. So when the month rolls over, I buy more equities in my account on the first Tuesday of every month. Why the first Tuesday of every month? Well, the market's closed on a lot of Mondays in the summer, and I am very thankful for that.

So there's really only two steps here. And then in this like saver and invest plan, it's like the kind of nine to five to wealth. I'm going to get into some math and some scenarios here in the second step here in the third step, which is optional. So there's this optional third step, which is I was making over six figures at 24 years old with my job plus side hustles. That's what pushed me over the edge and really got me to a high savings rate. I know this side hustle term, I find it so cringy, but whatever, people know what I'm talking about. I was trying new business ideas, what I call five to nine. So we're talking about the nine to five

to wealth. What about the five to nine? This is after work. This is weekends, trying new ideas, make a run at building a business. Many are going to fail. It's okay if they do. You're going to learn a bunch and then you take another run at a better idea. You're going to be well-equipped. When you make your first dollar, it's such a good feeling. Then the next dollar comes a lot easier, but the first one's really tough. So give a shot on optional step three, which is five to nine. Scenario time, but any comments here on this oversimplified but useful plan here, Simo? Yeah. I mean, the only thing I would probably use a more conservative return just because I like to under promise and then overachieve. That's just kind of a personal thing, just because

I prefer having just a more conservative approach, even if I think it might be more realistic to have eight or nine percent. But that's just me. And then the last thing to save money, I found that works really well, especially for the iPhone users or Apple ecosystem. You can actually get a lot of subscriptions through your Apple Pay, I guess, that you would subscribe. And if you do it through your phone, for example, you'll have somewhere where you can go in your iPhone, look at the subscriptions that you currently have, and actually have a list in front of you. And I find that very useful because sometimes you can forget that you are subscribing to something. And if ever I subscribe to something that's more than a month, usually what I'll do is

I'll subscribe and cancel right away. So it doesn't auto renew. So I actually have to go and renew it myself if I want to keep it. Yeah, fair enough. I mean, if you're not getting value from it, then go ahead. If you're subscribed to Stratosphere, you should probably keep that one. All right. So not financial advice. Do your own scenario modeling here. Okay. Of course, do your own scenario modeling. But I'm going to go through some examples here in the nine to five to wealth. Okay. So let's use a scenario where you're making $65,000

gross income in Ontario tax rates. Okay. Ontario tax rates. I'll go through some other examples after your net pay after tax is $46,417. If your gross income is $65,000. In this example, we're going to say that you're going to be able to save 13% of your after-tax income, which is super doable, which gives you that $6,000 per year of TFSA contribution max. After 31 years, I know it seems like a lot, but 31 years, you hit a million dollars. I know it takes a while. It's unsexy. It's not, you know, it's not what you're going to see on these trading bros on YouTube promising you a million within a month. It's going to be easier said than done. And long-term, okay, if you look at this plan, you're going to hit it a lot closer than 31, because this

is just based on six grand a year and making 65K. I mean, hopefully, you know, ideally you make more over time. Okay. Let's use another scenario. Someone making 90K in Vancouver, 90K gross income in the tax brackets in British Columbia. Your take home is 65 grand. In this scenario, let's say they're saving and investing 25% of their income. Again, I think it's doable. You would hit one and a half million after just 25 years. So this could look like an early retirement depending on when you start. If it's a 40 year career, and a lot of people hit that 40 year career, you would surpass $5 million compounding at market returns. Okay. And so this is just a reminder of what's possible. It's obviously easier said than done.

It's obviously oversimplified, but it's just an encouragement here to think longer term. The market is so short sighted. What you see today, stocks getting wrecked, this is not new. All the time, look back through history, this is the only normal thing that you can really come to expect is volatility, stocks bouncing around, your net worth fluctuating. It's just not that relevant when you zoom out to what you're trying to do. My one scenario was 31 years. My other one was 25 years. You could do a million other scenarios, but it's not talking about 25 months or 25 quarters. And so it's just a reminder to take a step back.

Yeah. And even if you're a bit older than us, obviously I have about 10 years on Braden and there might be some people in their mid 40s or 50s. Just remember that retirement, you know, it's not the end of you needing to invest. You know, you'll need money to last for a while through retirement. Obviously, people stay healthy for a long time and will live through their 70s, 80s, 90s even. So a lot of people tend to think, okay, I only have 20 years because I'm 45 right now. I'm retiring at 65 and then that's my time frame. Well, actually,

your time frame will probably be 40 years in that kind of scenario or even 45, 50 years. So just keeping that in mind because the scenarios that Brayden mentioned probably apply to a lot more people than they would actually even realize. Yeah, no, I totally agree because if you're at that age, you still got lots of years. Again, not a knock, but in the financial world, they move you into something super, super conservative at that point. And the problem with that, in my opinion, just again, we're talking about my opinion strictly here. The problem with that is you can be very healthy. People are living a lot longer. It's a good time to be alive. So that's always something to keep in mind as well. 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 moving on to our next segment, I wanted to talk about market cap weighted ETFs and whether they're better than equally weighted ETFs. So a lot of people might not realize that, but for a lot of indices, there's actually the two kind of ETFs that are available. Clearly, the market cap weighted are the ones that are most common out there, but I thought it would be a good idea to talk about this.

So let's start by having a look at the returns from SPY. SPY is just a well-known S&P 500 ETF and compare it to the market returns of the RSP ETF, which is a equally weighted S&P 500 ETF. And it's interesting to look at the data here. So I just took four different intervals. The first one is 10 years. SPY had 256% returns. RSP to 39%. Five years, SPY still in front at 91%. RSP at 78%. 1% one year SPY is up 1% and RSP is up 2% so it's getting much closer and then year to date SPY is down 13% and RSP is only down 8% so long term the market cap weighted as clearly outperform its equally weighted sibling but not by as much as I would have expected. I don't know if you expected more than that, Brayden. Yeah, it's one that I've back-tested so many times here, and I'm glad you're bringing it up because I haven't thought about it in a while. And it's something I used to think about a lot when I started investing. Now, when you look at sectors that have performed recently well, it's these large technology companies that have been such a big

part of the index when it's market cap weighted, and they've all been traditionally great to own over the last 10 years. So that's why you're kind of seeing that skew even more on a more recent basis. But yeah, it's interesting data. Yeah, exactly. So a lot of the returns from the S&P 500 in the past 10 years have come from big tech. The time periods are a perfect reflection, I think, of the upsides and the downsides of market cap weighted indices. When the largest companies perform well, it creates really good returns for the index, Sometimes despite actually a majority of the index not performing well because they're so heavily weighted in the largest companies.

But on the other side, when the largest companies start not performing quite as well, it can drag down your returns. And we saw that with the year to date with the SPY being down 13% and RSP being down 8%. So that could happen even if the majority of the names in the index are performing well. And you can even find some reverse market cap weighted ETFs. I don't know. Have you seen those? I've seen heard of them. Yeah, I've seen it. It's really goofy, but I've seen it. Yeah. Yeah.

So one of them is ticker YPS. So essentially, it is a market cap weighted, but to the inverse of the S&P 500. The smallest companies have the largest allocation and the largest companies have the smallest allocation. So YPS hasn't been in place for that long, but it is very close to RSP. So the equally weighted one over the past five years, and it's only down 5% for the year. So it has outperformed both the equally weighted and the regular market cap weighted this year. And really the logic behind these is that you're betting that the smallest companies have the most potential to grow and therefore you're putting a bigger allocation into them. When I look at recent performance and this

kind of methodology of market cap weighted versus not, I will just chime in on some like random phenomenon on some data where you were actually deeply negative on the index last year if you didn't include the five companies of apple microsoft google tesla and nvidia and so it's like a slippery slope on like you know which one's better and you can take random time periods and make a case for one or the other. But last year in particular, was a really strange outlier, where you were actually deeply negative in a drawdown. If you didn't have Nvidia, Tesla, Google, Microsoft, or Apple considered in the index. So just another random cherry pick stat, but one that's interesting at least. Yeah, no, exactly. And that's what happened, right? When you're using a market cap

weighted index as an ETF, for example. And if we're looking at historical data only, it's clear that the market cap weighted is the way to go. But I think, you know, we don't mention this enough, you know, history, you know, it's important what happened in the past and the returns that happened in the past. But I think it's always good to remind ourselves that it's also not necessarily what will happen in the future. And I think that's really a good point just to reinforce. And the answer here for me depends on, you know, on what you want as a portfolio and really volatility. So if you think of the largest companies in the S&P 500, do you think they will continue outperforming going forward?

And if you think that answer is a yes, then I think the regular S&P 500 index ETF is probably the way to go. But if you prefer having something that is a bit better balance and will probably be less volatile because it will be equally weighted, then the equally weighted index ETF probably makes the most sense. And again, the last one, if you're not adverse to volatility, and this one will be the one that's the most volatile, and you think that the smallest company in the S&P 500 will outperform going forward, then the reverse market cap weighted might make more sense for you. I'm saying here it's going to be more volatile because typically smaller companies tend to be more volatile than bigger, better established companies. But again,

I mean, if you're in the S&P 500, you're typically pretty well established. So I guess, you know, I would take that one with a grain of salt, but that's the logic behind it. You're really betting on the smaller companies. They're smaller. So, you know, if they're smaller,

they typically in theory should have more upside. The one thing I'll caveat there is because I went down the path of trying to back test this scenario. And the one thing that is really important is we're talking about the S&P 500. The S&P 500 is administered by the company S&P Global. There is a decision committee that decides which companies are included and excluded. Very rarely, maybe never, maybe never does a company enter the S&P 500 at the bottom. Almost never, probably never does that ever happen. For instance, when Tesla got included in the S&P 500, it was already like, you know, top 10 in global market cap. And so that is something to consider. You're not kind of like catching

something on the way up. You know, like you're not kind of like catching Netflix enter as number 499 constituent. And then it like, you know, drives returns up to the top because by the time it already enters in that selection process, it's going to be way up. It's not actually done specifically by market cap, although it is very close to done by market cap in terms of what gets included and excluded. It is a decision-making committee from the index administrator. So just something to consider in terms of like, when I went through this backtesting situation, that really throws a loop into predicting anything reliable moving forward. No, that's a great point. I mean, personally, I think for me, it would be either the equally weighted or the regular market cap weighted. It's just because, you know,

we're seeing it right now, the downside of the because, you know, we're seeing it right now, the downside of the market cap weighted. Like we're seeing it right in front of our eyes. It's very clear with the data I explained. You know, when you have companies that are so large, such a big portion of the index, I mean, if they start underperforming, you'll feel it. And really the equally weighted, I think you can, it's a good alternative because you can

capture the upside a bit more evenly across the board and limit your downside as well. But again, historical data, long-term, clearly market cap weighted would have been better. You bring up a good point because you probably, again, haven't done this kind of backtesting, but you probably are a lot less subject to factor rotations if you are not market cap weighted. Because if you look at the top 15, so much of it's tech, and those trade on similar factors in the short term, right? In the long term, they're going to trade on business performance and earnings growth. But in the short term, they trade on factors. You know, we've been just slaves

to factors in 2022. The market's just moved entirely on factors in 2022. And in the short term, it drives almost all of decomposition of returns. Again, we're talking about short term. of returns. Again, we're talking about short term. So yeah, it's interesting data. Quick comment on earnings season before we wrap up here. We're seeing some really solid results come out. I've been saying, my businesses are doing great, my stocks are doing poorly. When stocks move on meeting or missing expectations, it's a fairly short term phenomenon. I've never really understood that well. It doesn't make much sense to me. But I mean, for the most part, long-term investors, it's just straight up, flat out irrelevant in terms of how they perform compared to analyst

estimates. Did the company miss or did the analyst miss? It's the old chicken or the egg situation. Most of the stocks ties back to our first segment here that I home that are reporting. Google, 22% top line revenue growth, trading at like 17 times next year EV to EBITDA. Seems cheap. I'm going to keep adding more, which ties into my second segment as well, which is just you know, just keep at it. Just keep buying. Just keep adding. These are the things that you should hope for. Great results, poor stock performance. That's good in the short term for you, for long-term accumulators of equities. Yeah. And just make sure you understand what's happening with the business you own or that you're thinking of

investing in, because I totally agree with Brayden like a google but going back to our first segment you know the news that came out with netflix and what happened last year with meta those are potential thesis changing yes kind of movements or you know results so i think it's important those were not just like bad news they were potentially changing the thesis for investing in those businesses. So there's a big difference between that and a company just slightly missing expectations. I just wanted to reinforce that as well. company specific metrics like for for netflix there it's the subscribers speaking of that and i'm hinting at again here stay tuned next week because we're going to talk all about these companies and the week after as well it is earning season so make sure you're tuning in just as like a just a general example here last year the thesis on visa and MasterCard was that they were dead. Transaction volume has more than doubled since 2017 here on total transactions. Visa transaction volume has gone from like $8 trillion to almost $14 trillion since 2016.

And so it's, again, important to focus on the business fundamentals, not the stock price, because in the short term, stock price drives narrative. It drives narrative. It transforms the way people think, sometimes illogically, but it's here for opportunity. Yeah. And we'll try to sprinkle a few Canadian names in there like we usually do as well. So it is the Canadian Investor Podcast after all. Talking so much US names today, but hey, you know what? That's a good point today. I was just talking to a guy, he's big on YouTube and he does Canadian stocks and he makes, you know, he has a huge audience just focusing on

Canadian stocks, but he's like, yeah, my portfolio is like 90% US stocks because he recognizes Canadian home bias is largely a mistake. And we see it a lot, even on our download numbers. If we talk about Canadian stocks, more of y'all tune in than US stocks, which I mean, I get it. I get it. I get the currency. I get the home bias. I own lots of Canadian stocks, but it's just a reminder to not be overly diversified in home concentration. I do think it's a mistake and I do think it should be avoided. All right. Speaking of what we own particularly, it is live. JoinTCI.com. It is live. Our first post is up there. We're going to do it monthly. It shows what we

are buying, just like transactions in our own portfolio. Again, we're talking about like one move a month tops because that's the kind of guys we are. We're not in and out of stuff. That's goofy. So it's not some like stupid trading discord crap. Oh, we hate that stuff. So it's not that we'll try to make sure it's everything except for that. But we do show our exact portfolios down to the percentage, and that is available at joinTCI.com. And you can see how much pain we're going through right now with our returns on a monthly basis. See how much money I'm losing on a daily basis. Yeah, no, that's true. So that is joinTCI.com. Again, it's more so just a way people

have been asking us, how else can I support the show? It's been so helpful for me over the last year, over the last two years. I've been listening from the start. How do I support you guys? Well, this is how you support the show directly so that we can keep making this content. Because trust me, it's a lot of work. So again, that is join tci.com. We really appreciate it. 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.