The Canadian Investor - Berkshire’s Record Cash Pile and Retirement Income Accounts

Episode Date: August 19, 2024

In this episode, we start by talking about Berkshire Hathaway's record cash holdings which have now reached 277B.  Simon then goes over the mechanics of RRIFs and LIFs, offering a detailed breakdown of how these retirement income funds work. He also shares learnings following the conversion of his parent’s investments to RIFs and LIFs. We also revisit a Canadian small-cap company, MDA, which Braden had previously flagged as one to watch and why it's still on his radar.  Finally, we'll discuss Bitcoin’s recent volatility, examining how the unwinding of the Yen Carry Trade has impacted the market..   Tickers of Stocks & ETF discussed: GM, F, SPOT, DIS, BMW, VOW, PARA, WBD, RY.TO, TD.TO 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 Dan’s Twitter: @stocktrades_ca 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  Web player - The Canadian Real Estate Investor Sign up for Finchat.io for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. The Canadian Investor Podcast. Welcome into the show. My name is Brayden Dennis, as always joined by the stellar Simon Belanger. Let's start with a game. You know how I like to do this. I like games, yeah.

Keep you on your toes. I've got a puzzle for you hot out of the gate here. Are you ready? Yeah, go for it. What do these groups of companies have in common? Okay. So I'm going to give you three baskets of companies and then you can try to weave them together. Like what does basket one have together? What does basket two have together? What does basket three have together? Okay. And two have together? What does basket three have together? Okay. And then is there a story that connects them? Okay.

I didn't know I had to study for this episode. Yes. Yeah. You're being graded. The first basket, Mercedes-Benz, BMW, GM, General Motors, Ford, Volkswagen. Okay. That's basket one. Okay. Basket two is Spotify, Disney, Paramount, and Warner Bros.

Okay, that's basket two. Basket three just makes up of two Canadian banks, RBC and TD Bank. Okay. These are the three baskets what do they have in common between them what do they have common across all three baskets okay so i'm gonna go with uh uh the first one obviously they're um auto manufacturers correct i would say more kind of legacy auto manufacturers if i had to to put it i've been a while like around for quite some time yep yep that's right okay that those are what comes to mind the second group with spotify disney paramount uh of that i'm gonna say it's more like streaming services.

Yep. That's the thing that comes to mind. And then the last one, I'll just say they're the only two Canadian banks that are G-SIB, so globally, systematically. You know what I mean. Important banks, G-SIB. Exactly. See, Simone, you're a really smart guy, and you were able to weave those together.

But you know what? You're wrong. Yeah, I was going to say, it's not what you wanted to hear. That's okay. All three baskets, no matter which way you slice them, if you add up the market caps of all of the baskets, you get a amount smaller than the Berkshire hathaway cash pile that's fair yeah 277 billion dollars sitting on their balance sheet in cash or short-term liquid investments

unbelievable it's just absolutely unbelievable they've sold a bunch more of apple here and i know this was an impossible riddle riddle to solve here but that's that's the that's the fun here on the podcast so how much do they have again 277 billion oh yeah that's right okay yeah i was pulling it up here yeah on uh on finchad.io it's kind of crazy and i i've definitely been looking into this quite a little bit as well and it's well first of all i think people get too worked up with berkshire adding some money on their like having a lot of cash on their balance sheet because if you look at their cash on their balance sheet, especially if I look on the kind of annual basis over time, for the most part, it kind of increases gradually. You can even make a case that it kind of creases a little bit with inflation, just because they have

such a big insurance business, they need to have a decent amount of cash on the balance sheet. But the most recent one really took a lot of people by surprise because the increase was significantly more than traditionally it has been for Berkshire. Of course, sometimes it goes down if they're making some pretty big purchases. And usually that's because he's being very strategic. But this most recent one, especially selling of more Apple shares, I think it's an indicator that Buffett is really seeing the markets as overvalue. And I think he uses this, what is it, the US total market cap versus GDP is kind of the Buffett indicator. And it's sky high right now. I think it's one of the highest level it's ever been. So that would make a whole lot of sense why he's keeping a lot of cash on the balance sheet. Yeah, it's an astounding amount of cash.

I think most people kind of look at Berkshire, the conglomerate, and you look at it and you go, okay, you're probably going to get market returns or better just because they have a great group of businesses, a bunch of regulated assets that have amazing contracts, whether it's utilities or railroads or the insurance businesses. You're getting a lot of regulated return businesses inside of it. And then, of course, the public market portfolio, you have one of the best of all time, if not the number one goat of all time managing it. And so you think, okay, probably a pretty good bet. And of course it has been. But this cash drag, it's become such a sizable portion of the market cap. Like the market cap is just under a trillion and you have 277 in basically cash.

You can get a pretty good return on it now, luckily, thankfully. Yeah. I mean, you know my portfolio and I've been pretty vocal in the podcast now for over a year is that I don't think there's anything wrong with having some cash in your portfolio at these rates, especially if you're looking at US treasury bills, which is what Berkshire, I think most of it is US treasury bills, really short term. And I don't know if we talked about it on the podcast or was just chatting like that. But if you're looking since the start of the year, denominated in Canadian dollar, you're looking at about 7% returns if you've been holding U.S. Treasury bills with the combination of the interest rates that you're getting or the coupon you're getting for the treasury bill plus the depreciation of the Canadian dollar versus the

US dollars. It's been, I mean, it's not a huge portion of my portfolio. It's around 10%, but it's been like, I'm not going to complain. Sure. I've trailed the market, but the also the flexibility it gives me, if there are opportunities i think that is worth a decent amount of returns as well that you're you're not getting all right let's move on to your first segment here riff and lifts uh you got a couple examples to work through here as well these are obviously accounts here in can that people might be familiar with down the line. Yeah, exactly. So if you're American, keep listening because if you decide to move to Canada,

maybe you'll use them eventually. But having said that, so Riffs and Lifts. And I'll explain. I'll do a bit of a refresher here because we have talked about it, but it must have been a couple of years ago the last time we talked about it. And the reason I wanted to talk about this is I recently helped my parents they've turned 71 last year so they had to convert in December of last year their RSPs and their locked in RSPs to RIFs and LIFs so I'll explain a bit how it works and the experience of kind of helping them with that and some of the things you learn as you're actually converting it.

So a RRIF, which is RRIF, so it's a Retirement Income Fund or Registered Retirement Income Fund. Before age 71, you can withdraw RRSPs whenever you want, but it adds to your taxable income. But like I mentioned, by December of the year in which it reached 71, you have to convert your RSP to either a RIF or another income producing vehicle. It could be like an annuity, for example. A quick note here, it doesn't have to be either or. You can do a combination of both as well. And RIFs are for regular RSPs, not for locked in RSPs. So that would be the RIF. I'll talk about that in a second here. And once it's converted to RIF, there is a minimum percentage that you must withdraw every year, but there is no maximum. The minimum percentage that you must withdraw is based on your

age. Now, for example, at age 71, the minimum withdrawal is 5.4%. and once you hit 90 it is 20% so it does increase quite a bit the reason is the government wants to get its taxes sooner or later so they force you to start withdrawing in retirement and the percentage is calculated based on the value of the RIF as of December 31st of the previous year. So for someone who would have a RIF this year, for example, they had it last year as well. So the value as of December 31st will determine what is the minimum amount that you'll have to withdraw this year. I was just going to say, I don't know how helpful it would be because the Lira, the locked in retirement account is an account that we've talked about on this podcast you know despite being an episode you know in the multiple hundreds

have talked about very very little and i've noticed of course this is very elementary stuff but i've noticed that some folks mistake some characteristics of the lira on their rsp around it being locked in you can't early withdraw and like there's huge penalties and all this stuff of course there's tax consequences but i don't know if it just might be helpful to just talk about the lira really quick i think a lot of people are very familiar with the RSP moving to a RIF, but what about the Lira? When do you get a Lira? I personally have a Lira because I used to work for the government and moved it over to self-directed Lira. I don't know, should we just do a little background first? Yeah. No, that's great. I know these quite well, so I can just

talk about it like that. A Lira, it's a locked-in retirement account. It's very similar to a locked in RSP. The main difference between the two is a lira will be typically if you have a pension that's provincially regulated. So each province will kind of have their own set of rules regarding the liras, but typically it'll be a pension plan that was registered with the province. So that's why you were with Ontario. So that's why it's a Lira. I have a Lira as well, because when I was with the city of Ottawa, it was provincially legislated. And then you have the locked in RRSP, which would be for pension plans that were with the federal legislation. So for example, if you have a pension with an airline, you would have a locked in RRSP with a big bank, you would have a locked in RRSP with a big bank.

You would have a locked in RRSP. So they're very similar. There's kind of small differences in terms of when you do convert it to a life income fund, for example. There's some variances of that. And the life income fund is the lift. So it's essentially how you want to withdraw the money. Like you mentioned, you alluded to the Lira and the locked in RRSP are locked in. So you're not able to withdraw the funds until you convert it to a retirement vehicle or retirement income vehicle. There are

certain very kind of special exceptions that, you know, I think if you have a shortened life expectancy, I think you can get potentially the funds a bit earlier. They're very rare and they're very stringent as well. So you have to be able to prove in order to be able to kind of withdraw the funds or unlock a certain portion of the funds before a certain age as well. Yeah. Okay. Helpful context. Not a lot of people will have, I don't know what percentage of the people listening this is relevant, like a lira is relevant to. You and I both happen to have one,

but I don't know what percentage of people would qualify. But I wanted to touch on that because I have seen, incorrectly, people translate some of the characteristics of the lira into their understanding of how RSPs work. And that can be a mistake tax planning in a major way, in my view, and around the flexibilities of what you're able to do. Yeah, exactly. The RSP gives you just a whole lot of flexibility that you don't have with the lira. I mean, there are certain rules or both retirement accounts

that are very similar, identical to both. But again, I think the withdrawal flexibility is one of the main differences. I think we've given this example before where, let's say we have someone that goes on maternity leave for a year and her income is much lower than it normally is and she has RSPs, then, you know, it may be worthwhile to look at potentially withdrawing some of those RSPs because you'll be at a much lower tax bracket during that year, for example. So you can be kind of a bit more strategic with RSPs without necessarily being at retirement. Prior to retirement, you can kind of try to withdraw when it's opportunistic, especially if you think that those years you'll be at a lower tax bracket than potentially even at retirement.

And so you could, you know, if you have a really low year in terms of revenue, you could, you know, supplement your revenues with that or even take the money, get taxed at a lower tax rate and put it in your TFSA if you have room. This is exactly what I did. I don't know if you remember this. When I was just starting my company, I went from making a good salary as an engineer to zero. And that was very tax advantageous for me to use my RSP. Yeah. So there's a lot more flexibility in terms of withdrawal, but the most important is it does add to your taxable income. So I think that's what people need to remember here. 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. Calling all DIY, do-it-yourself investors.

Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like learning

Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, blossom social in the app store and I'll see you there. 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. To get back to the LIF,

an easy way to remember LIF and RIF. So an RSP starts with a R, so you have the RIF. And a life income fund is for LIRA or locked in RRSP. They both start with an L, so you have the life income fund or the LIF short that's associated with those. So that's just a little trick. Sometimes people kind of get confused between both of them. That's one trick I use when I first was getting started learning those several years ago. And again, same thing by December of the year in which you turn 71, you have to convert these accounts into an income producing vehicle.

However, you can do it before then if you wish to do so. It will vary again depending on the legislation when you can convert it. So keep that in mind. A key difference here is that you won't be able to start withdrawing funds from the Lockting account, like I said, until you convert it to a Lyft or another income producing vehicle. So you could also buy an annuity with it or a combination of both. So that's something, for example, that my parents did. They bought, they used a part of it to buy an annuity and the rest, they kept it in the Lyft and the and the rev so that's something you can do as well another key difference is that the lift will have a maximum but also sorry a minimum but also a maximum withdrawal percentage the percentage can also vary based on the jurisdiction

of the account federally versus provincial and which province more specifically i can't remember i think it's newfoundland where once you reach 80, I think you have to buy an annuity with the remaining funds. I'm pretty sure it's that one. But anyways, I'm just going on memory here. Now, in terms of the learnings, I think this will be helpful for people in their 50s or 60s that will probably be converting those into lifts or riffs in the next decade or so. So once the money is in the rift or lift, you have a lot of flexibility when you get the payment in the calendar year. So the important thing that is really that you withdraw the minimum required for the year. So that means you can set up payments on a frequency of your choosing monthly, quarterly,

semi-annually, or even a lump sum. As long as you withdraw what you need to withdraw during the year, you're fine. Second is that this is something that I found with TD Direct Investing, which is what my parents use. Not sure if it's the same for all providers, but there was some challenges to keep the US denominated accounts separated from the Canadian ones. So I'm not sure if it's specific to TD or this is all they all operate, but certain accounts, they were able to keep the same account, but have, you know, how like you can keep the US with the US, your cash in US and the stock that are US based and then the Canadian and Canadian cash ones. But other accounts, they had to all be in the Canadian one, which creates a challenge if you want to

sell a US stock and then buy another US stock because it'll automatically convert the sale to Canadian dollars. And then you have you would have to use the exchange rate again to buy the US stock. So I don't know if this is every single broker, but something to be aware of if it is something that affects you as well, because you'll probably want to plan accordingly in terms of what you're buying, because you're going to be charged a commission potentially twice. It's a bit annoying. I don't like I said, I don't know if it's all of them. They were already set up this way. But having cash in your riff and lift to cover the currency or payments should be, in my opinion, the absolutely absolute minimum amount of cash that you should hold. So it should be the minimum. I don't think there's any issue with having more cash in that. I mean, it's pretty simple, right, Braden? If you have sufficient cash to cover the payments, then you don't need to sell shares of the

stock, bonds, or whatever assets that you have other than cash to cover those payments. If you don't have enough cash, then you may end up screwing yourself if the markets go down and you have to sell assets when they're depreciated. So planning is extremely important here because you want to make sure that you're not kind of forced to sell. And we talk about that all the time, right? As a retail investor, you know, you want to have an emergency fund to not be forced to sell. Well, this is the same kind of logic. You want to make sure you have enough cash to cover the payment at the very least for the year.

Personally, for them, I think it's closer to five years that they have in treasury bills to cover the withdrawals at the current rates. So they're pretty well set up. And then the last thing to keep in mind is, especially if you've had multiple jobs, you have multiple liftsFs and RIFs account, make sure you diversify each account. That's because the minimum payment is established per account and not for the totality of your assets. So say you have all stocks in account A and all cash in account B. Even if you have enough cash in account B to cover several years of payments for all of your accounts, you won't be able to do so since the withdrawals are per account. So you'll still have to sell stocks in this example in account A to be able to cover the minimum withdrawal. So it does require some planning, especially on account basis. I would not have thought that. I would have

never thought of that because usually it's like if i have you know if i have like 10 tfsa accounts but like that encompasses my entire contribution limit it doesn't give me 10 times the yeah amount of like yeah that's wild to me yeah it's because too you know you'll have you could have you know before the conversion right up to a LIF, you could have a regular RISP. And then you could have a locked-in RISP because you worked with a federal employer. And then a LIRA because you've worked with a provincial employer in one province. And then another LIRA where you've worked with a provincial employer with another province. So, you know, in this situation, you have four accounts. And it's really each account because each account has different rules.

So each kind of minimum is set with the account. So you really have to be careful. Obviously, if you have multiple RSPs, you can combine them all in one account. But if it's with multiple providers, I think they'll still have to force you with the minimum withdrawal for each because it'll, I mean, at the end of the day, it'll be the same thing, but it's still with multiple providers. Something to keep in mind, I know it's more of the logistics, but it can make a huge difference if you're not planning correctly, because then you can end up having a surprise that you were not expecting. How did you learn all this when you went to go help your parents? Because I mean, yeah, it was, I mean, I helped my parents doing it.

For the most part, there were some things I wasn't aware. So all the different per account things, it's not something I was aware. Thankfully, their accounts were pretty well diversified. So I had to tweak things accordingly to make sure that each account had a decent amount of cash and similar kind of diversification in each account. But just things that I kind of learned on the go that you, you know, it'll be hard for people to find that information until they actually do it or they work with a financial, a professional that, you know, a financial planner that specializes in that. So I figured it would, it would be helpful for people just based on the experience I had with my parents. Yeah. The piece of like the tip that I have with this, what I'll just call taxation stuff or registered account activity, it all seems incredibly confusing. And that's because it is.

And when you read about it, it is a little bit overwhelming, especially on government websites. They do a really good job of making it confusing. But it's one of those things where when you go do it in practice for yourself or a family member, that's when you learn it. It all makes sense. It's really hard to learn when you don't have an application of it in your own world. the RRSP, the TFSA, the LIRA, when it converts to LIFs and RIFs. But until you actually have to do it in practice with your own account or family member's account, it's really overwhelming. So my tip here is don't get discouraged early because it can be discouraging early. Once you get into the weeds and into the thick of it like you did in this example it starts to make a lot more exam more sense when you have a like application to apply it to in real life whether it's account your own account or like a loved one yeah yeah exactly and don't

be afraid to ask like people that have gone through the process before or you know find a good financial planner that would be able to support you that specializes in this kind of stuff can you have a whole lot of value even if there's obviously there's cost to it but again i think we've i've we've been pretty consistent like a good financial planner you'll see the value that he or she provides i think that's pretty uh not not the one that sell you mutual funds at the bank. This is exactly what I was going to say. Money well spent is on complex tax situations with a very good accountant and fixed fee financial planning for this type of stuff.

If you're looking at this and going, okay, I'm going to need some help. No problem. That's fine. You go get some help. Save all the money you've saved by not paying mutual fund fees. Sleep fine at night knowing you're going to pay this fixed fee amount or whatever to sort through what I'll just call the umbrella of taxation. To me, that's money well spent and and it can be net net profitable when done correctly and if you have someone really good whereas like there's no value in this day and age buying mutual funds compared to the index like i can't think of any really good claims anymore no it's not easy to find them again and especially now that you can find even active traded funds like active ETFs that have reasonable fees that could, you know, that can offer you some alternatives, even if you don't want index funds. There's some pretty good alternatives out there.

There's so many ETFs that, yeah, I agree with you, especially if we're looking at, you know, load minimums and that you have to commit and stuff like that. The ETFs offer. I mean, it just offers way more flexibility in my opinion. What's that Charlie Munger quote? Off the side, off the top and in the off the middle. Yeah, exactly. He's got some good quotes on that one. 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. Calling all DIY do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked.

The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment

ideas and using the analytics tools. So go ahead, blossom social in the app store and I'll see you there. 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 shift gears to an update on my small cap segment. Do you remember I did, I think I went through six Canadian small caps, I don't know, a month or two ago or earlier in the summer? Yeah, I remember that. Okay. So the company that I highlighted at the end was like, in summary, the one that I have the most kind of, I need to look at this more. And I kind of ranked it as, this one should be on my watch list. The other ones are interesting, but this one should be my watch list. Strong growth, nice growth prospects, secular trend, and actually profitable, if you can imagine that.

I was talking about mda space which is ticker mda on the toronto stock exchange yeah aerospace company does lots of work within in space and aerospace and so this is not meant to be they don't do undersea exploration they don't do no they don't uh not't do under... No, they don't. Not yet, anyways. Not yet. This is not meant to be a news episode, but hey, this Canadian company needs another look again

and a quick update. Disclosure, do your own research. I'm not a shareholder as of recording. This podcast is August 13th, 2024. I am not a shareholder. I don't have intentions of buying shares in the next little bit. And I'm just putting it as like, hey, I've been trying to find some more smaller names. Now, this is not like some nano cap. It's a couple billion in market cap. But hey, there's more out there than big tech. All right. So their recent quarter, they won a $1 billion contract with Canadian Space Program.

And the backlog is now at $4.6 billion as of the quarter end, which was up 320% year over year, 318% year over year. 318% year over year. Now across the board, profitability, revenue growth, low 20% across the board. They've had a really consistently profitable track record, which is nice as well. But this backlog has ballooned and it's really quite impressive. So the backlog went from like December Q4, 2019 ending quarter at 462 million to now 4.6 billion. So it has 10 X since the quarter before COVID basically. Yeah. And like four X in like a year basically. Yeah. Yeah.

Big, big contracts and when i look i'm just gonna look here as well on like how much they're executing on the backlog too because we track that kpi as well yeah well order bookings in the quarter was one and a half billion in the quarter of just new bookings which is kind of absurd so they won like some one big billion one, and then another 500 million, which is well elevated off of other bookings, like in a regular quarter too. So things are accelerating is the point I'm trying to say here. And I asked Finchat to kind of summarize what big contracts they've won recently. And they were awarded a billion dollar contract from the Canadian Space Agency for the next phases of the Canadarm3 program.

Final design, construction, assembly, integration. So they're vertically integrated from that perspective. The International Space Station from the Canadian Space Agency. Big contracts out until 2030. The non-geostationary orbit satellite constellation, another $180 million contract there. And their Square Kilometer Array Observatory project from the National Research Council of Canada. So I'm like, okay, in Q2, they won a bunch domestically. Interesting, but I wanted to ask Vin Chet again,

what about in the last four quarters? Have they won some big contracts outside of Canada? Because it's great to win a bunch of Canadian space program contracts, but can they win a bunch in the US too? It's like what I really wanna know. And no, in the last four quarters, they've been involved in winning contracts for the NASA Luna terrain vehicle, the Global Star Program, the Telesat Lightspeed Network, the US Department of Defense, they had a big build out for the satellite systems and the space development agency for the LEO constellations,

whatever that is. So I just thought that this was interesting to bring up. Company out of Canada here, the stock has obviously done tremendously well. It popped a lot on this result becoming public that they've won this big contract and that the backlog has ballooned from 462 million to 4.6 billion in just a few years. So definitely one to keep track of. It's very hard to get exposure to this kind of sector in Canada. So I posted it on Twitter that like this backlog chart and a lot of people commented that I know listen to the podcast like long the stock, long the stock. Thanks for bringing it up in that small cap segment. So I was like, not advice, but you know, hope you like the pod.

Yeah, and I mean, I think even with the fact on even looking at this from a macro basis, you're probably going to be seeing a lot of fragmentation between spending more in the kind of Western nations and then with the rest of the world spending on their end. So they could definitely benefit from more spending from friendly nations with Canada, obviously the US and Western Europe as well. So I think for such a small company, I think the market can be quite big. Yeah, it can be. Looking forward, the multiple,

well, I mean, the stock's up 150% total return on a trailing one year, which is obviously quite nice. But I don't think that price is absurd. I mean, trailing, it's a little bit pricey, but analyst has to have it at a forward price to earnings of 21 for next year's, next 12 months, the next four quarters of earnings. And estimates have been revised up a couple of times too, on top of that. Yeah, how accurate are estimates going to be

for such a small company though? Like there's probably what, like one or two analysts like covering the stock at most? Four. Four, okay, okay. Yeah, four analysts covering the name. So it's not like, yeah, anything under like, yeah, if it's like one or two,

I kind of just throw that out. But, you know, for professional investment bank analysts coming through CapIQ data into Finch ads, it's legit. Yeah. Yeah. Well, even Dan and I, when we recorded for the earnings, we're talking about GoEasy, right? The subprime loan company in Canada. And that's one of the things where like, I personally like don't give much attention to the analyst forecast, because that's a company that can be so affected by macro if job losses start piling up, and then the write off start going up through the roof,

like it just how can you even forecast earnings, especially in the period right now. So I think it just I wanted to mention that because I think there are businesses where it's a bit easier to forecast earnings a year out where others I think you need to take with a big grain of salt in this situation, like I mentioned, or a situation where there's like one or two analysts at most, then it's, you know, the sample so small that I think there can be a lot of variants yeah no and it makes sense you gotta look at how many analysts are covering it if it's a small cap name that kind of stuff but you know just just thinking out loud here they're doing 130 million

of ebitda the market cap is 1.7 billion Canadian, by the way. Canadian, that's 500 million US. Yeah, that's like 20 bucks US. So you look at it from that perspective, they're growing profitably at an accelerated pace. Do you think the company can be worth a lot more than 1.7 billion? And I know that's really back of the envelope way to look at it, but that's kind of first principles of how I'd look at a lot of these names. If you're buying something small, your hurdle rate for growth should be higher. That's been my opinion on looking at small caps for a long, long time. in my opinion, on looking at small caps for a long, long time.

I don't think it makes sense to look at it the other way when you can buy Microsoft growing the top line at 15%. It's a difficult hurdle, right? Yeah. Would you find a company like this, which clearly it's probably at the cutting edge of technology when it comes to it's actually a really old company by the way yeah but how like would that be a concern to you just for me it would be right just trying to fully understand the business i'd like

or you just get into it knowing that you know you won't fully understand the business you may get a general idea of like what they do and you stay on top of the metrics and everything like that but it gets so kind of technical that you almost have to kind of trust them to some extent i do think you have to have some sort of understanding of what they are doing in their in this value chain for the governments here. Like they are a government supplier, same way if you're buying Raytheon or... Lockheed, Lockheed, buying Lockheed.

I don't know how I blanked on that. You have to have some sort of understanding of like what are they delivering for as a defense contractor? And yes, it's really hard. The switching costs for these governments when you're in is really, really high. And that's what makes some of these businesses so great. Spending keeps going up over time and doesn't seem to ever really falter. But with these ones on space specifically, yes, I do think you have to have some sort of

opinion and i don't right now so that i'm not in a position to own it no i think that's a good point yeah i just wanted to mention that because some companies like the products they produce are just so complex but i agree with you i think you have to get a at least a decent understanding right you don't need to know the technology in and out. I mean, you still own ASML and you own it. It's not like you understand EUV like in and out from point A to point Z of like the intricacies of the whole technology, right? Like you know it pretty well, but you're also, you don't have a PhD to be able to understand that,

the intricacies. You kind of know enough about it. And I think it's a good point because obviously if you want to understand extremely well everything you invest in, especially the super technical products, you're probably going to limit your investing horizon quite a bit. Yeah, I totally agree. On that ASML point, that's a perfect example it's like i can explain ultraviolet lithography good enough but like yeah i mean am i going to be able to talk about the complexities of how they fire microscopic a microscopic piece of tin with a laser and how that creates three nanometer wafers no but the fact that i can even say that is like okay you know you know the company if it was very easy

there'd be a they would not have monopoly in that let's just say that well that's exactly it right there's there's it's trade secrets in itself right? Like their biggest competitors don't know enough to replicate it. Yeah, exactly. And I think, what do you think? We'll keep, I think, my next segment for next time because you've got a recording coming. Let's do it? Yeah, we have time.

And I want to talk about this because I'm going to play the devil's advocate in this segment. And we're going to talk about Bitcoin really quick here for those who are wondering. I want to play the devil's advocate and set up your segment here because I'm the guy who likes the asset. I own some of the asset. But I also am like, why is there so much freaking correlation? I've been told this is an uncorrelated asset. Talk me through your segment here. Yeah. So I mean, the first thing, so I'll talk through the segment. And I would say the more, obviously, I've learned about Bitcoin a whole lot. And since I've owned it for more than five years now, I think it's going on six years. And I think the simplest explanation is liquidity.

I think if you understand, you start understanding the needs for liquidity. So if there's a lot of liquidity in this system, it will probably be bullish for a Bitcoin. And then if there's a big drain on liquidity, it will have an opposite effect on Bitcoin. And that's kind of where my segment came from. So Bitcoin actually victim of its high liquidity and the fact that it's one of the most liquid assets in the world. The reason for that is you were listening to MainStreet Media and some so-called expert there are essentially, I find sometimes either they don't understand it very well or they're simply lying to you. And the reason I'm saying that is because on Sunday, August 4th, so remember the day before

the market had a large drawdown because of the yen carry trade unwinding, Bitcoin started dropping fast. So it started happening actually around like, you know, 8 p.m. Eastern time zone. And before I get into this is essentially the yen carry trade. I'm talking with Dan about it on the episode that will be released later this week when you hear this one. I do a deep dive into it. I explain how it works. dive into it, I explain how it works. And insured, though, it means that the investor borrow in yen at low interest rates and convert the money to, say, US dollars for a lot of cases to invest in US treasuries or the US market. So it can also be done to invest in assets in other countries.

But essentially, you borrow at low interest rate and invest in countries where the rates are higher and you collect the spread, the difference between both or the returns on assets you invested in if you invest in other stocks for example and ideally the yen keeps getting weaker against the currency you actually are investing in so the u.s dollar in this example because if it gets weaker you need less u.s dollars to repay that loan that was in yen, and therefore it boosts your returns on top of that. And then when the yen started rapidly increasing on August 4th and 5th, it turned that trade upside down, especially for investors that had used large amounts of leverage to do the trade. When the markets crashed in Japan around 9am on Monday, August 5th, it was 8 p.m. in Canada, Eastern Time, like I mentioned. So for investors that were heavy in the yen carry trade and needed to cover their loans in yen or get more capital as a margin requirement, for example,

Bitcoin was really the only asset that they could do that in aside from if they had actually Japanese asset at the time because it traded 24-7 you can convert it right away to whichever currency you want so I think that it explains one of the big reason why you saw that big drop on the fourth is because people can move massive amounts of Bitcoin very fast at a low cost. And obviously the other reason is there was probably a lot of leverage longs on Bitcoin. So people that were leveraging up, betting that the price of Bitcoin would go up, and then the price drops and essentially they get liquidated or they have to add to their margin account to not get liquidated.

And then you have some more price pressure down. So that's why I think that's a great example. And I can't remember where I heard it from on the first way. It could have been Lynn Alden talking about that. But essentially, I think Bitcoin as it is right now, liquidity, I think, has the biggest impact on its price fluctuation, whether it goes down or up. So for not as smart people like me, because of its liquidity and 24-7 trading, you saw the price action there before US markets open on the monday is that is that is that the tldr tldr because uh

keeping like when you need money fast right you're gonna sell whichever asset that you can get essentially that money the fastest and in that case it Bitcoin. Even if you love the asset, I mean, when you're stuck in a bind, you'll sell whatever you can. And oftentimes, they're either the highest quality assets or the most liquid. So when you get a huge market correction and someone has a margin requirement, if we look at stocks, for example, if you're investing on margin and you have some Apple, Like, you know, you're investing on margin and you have some, you know, Apple, you know, you have the Mag 7 and the market starts going down. Well, you'll probably end up having to sell some of your best assets to be able to cover that. So that's probably an easy way to compare it to stocks as well.

And just like order flow as well into the asset when something like that happens, a lot of selling pressure, a lot of fear coming through the market right away. And you have something trading live 24-7 like Bitcoin. thing with bitcoin is like why am i getting so much correlation to the nasdaq i just the price charts look the same to me like of course you know the scale being different you've done better with bitcoin but you know what i mean like the the dips and the and the bull runs happen at the exact same time i think it's probably a reflection of liquidity i think it's probably that right you get sentiment probably in general yeah sentiment and liquidity for both is the more you have liquidity. With the NASDAQ, it was probably created in part by that Japanese yen carry trade because you get these massive amounts of money that what else are they going to invest in? I mean, they're not going to be buying MDA because if they invest in that,

they'll buy the whole company outright, right? So they go into whatever is the most liquid and that would be the MAG-7 or let's just say the NASDAQ for this discussion. But they invest in what is the most liquid. That's essentially what it is. And treasuries are a great example. Treasuries, US treasuries are extremely liquid, probably the most liquid asset in the world. So that's why these massive amounts of money, they tend to go where liquidity is. And that's why I think a big part you're seeing those big mega caps get bigger because that money, which is also levered as well, which that's a discussion for another day and a little

bit scary at the same time, but that's the only thing really they can invest in without making the price move too much. Yeah. It's the whole idea of reflexivity and cheap cost of capital. For those who are not familiar with the term, it's a very fancy word, but it's really just a feedback loop. Reflexivity just means like it's a reinforcing, a self-reinforcing effect on market sentiment. So if you have, I think Tesla has been a great example of reflexivity where it's the very passionate investor base has provide and customer base has provided very, very cheap cost of Tesla and the charismatic leader that it actually made Tesla happen in a way. Because then you had this unbelievably cheap cost of capital. Stock could be issued at all-time highs. And you have customers buying a Cybertruck that

gets delivered five years later, right? You you have deposits sitting on for a long time. I think Tesla is a great example of reflexivity and that's your, that's kind of a market, same market idea that you're talking about here. Yeah. Yeah. But no, I think it's,

it was just fun to look at that and you know, just to see all the intricacies of like the domino effects and you know, one thing affects another and then the ripple effects of our financial markets fragile hey yeah i mean yeah that's that's a good way to put it braid on the bear yeah well you know anything that can be so self-reinforcing like that is inherently fragile it's like it's like when we the bank run that everyone's forgot about immediately after it was silicon valley bank last year like that was a self-reinforcing highly reflexive scenario where you have vcs like peter teal saying everyone get

your money out now and then you have widespread contagion, self-reinforcing fear spread. A small bank run turns into entire bank collapse. It is inherently fragile when you have such a self-reinforcing mechanism. Yeah. It's okay. Jay Powell came in with his money printer and saved everyone. Thanks for listening to the podcast, folks. We really appreciate you. I think that was a fun chat. I'm going to do my best to try to keep

finding some small little gems. And thanks for going over the Lyra. So just to recap. RSP Riff. R-R. Lyra. Locked in RSP. L-L turnsRIF. R-R. Lyra, locked in RSP. L-L turns into L-I-F.

You got it. The R stays with the R. The L stays with the L. Exactly. For people at home who are just maybe on the run listening or in the car. That's how you can think about it. And, dude, Mark Leonard manages my Ly my lira for free by the way yeah i know uh mark leonard obviously the founder and ceo of constellation software manages 100

of my lira for free also known as gandalf but also known as a discussion for another day if you haven't gave the pod a follow on your podcast player or review, it goes a long way. It really, really helps us. If you can go on there and smash a five-star, leave us a little rating, give us a little endorphin dopamine hit.

That's fantastic. And if you are in the real estate game, we haven't given a shout out recently to the Real Estate Pod, the Canadian Real Estate Investor Podcast. That's kind of like our sister podcast hosted by Daniel Foch and Nick Hill. They talk everything Canadian real estate.

So if you are in that game, you're a landlord, you are thinking about getting into that game or you're just a homeowner or thinking about becoming a homeowner, that is a fantastic show. That's the Canadian Real Estate Investor Podcast, and you can find it on your podcast player. We'll see you in a few days. Take care. Bye-bye. The Canadian Investor Podcast should not be construed as investment or financial advice.

The hosts and guests featured may own securities or assets discussed on this podcast. featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.