The Canadian Investor - Bitcoin, OTC stocks and our investing process

Episode Date: November 23, 2020

We start the episode by discussing some recent news. We then talk about the rise of crypto currency and more specifically Bitcoin in 2020. Then we go back to last week’s episode and revisit Wellhealth Technologies after uncovering new information on its past businesses. We then go into detail about our investment process and what we review before starting a position in a new company. We finish the episode by answering a listener question about over the counter (OTC) stocks. Tickers of stocks discussed SHOP.TO, WELL.TO, TDOC, TCEHY, PYPL, SQ, AAPL, WFT.TO, OSB.TO, CSU.TO Twitter: @cdn_investing Getstockmarket.com --- Send in a voice message: https://anchor.fm/the-canadian-investor/messageSee 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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What's up? How we doing? Simon, are you being threatened with a lockdown in Ottawa? Because that is the hot news here in Toronto, that we're going back into lockdown. No, Ottawa's actually doing pretty awesome when it comes to covid cases we weren't doing too good uh maybe a month month and a half ago i think we're back to like low double digits in terms of new cases so knock on wood so far so good uh for for cases but i know it's not going so well in tor. Yeah, that's to say the least.

All right, so we got some news. So we got a jam-packed show today. We're going to talk about news starting off. Wes Frazier Timber Co., the very large lumber company in Canada, has struck an agreement to buy Norboard Inc., all-stock deal worth $4 billion. This deal makes sense. West Fraser Timber has been a really good company.

Pretty strong growth overall. Stock's kind of hung around, not done a whole lot. But again, would Braden ever touch this stock? stock no it's commoditized uh move on and additionally so some other news constellation software they had this dividend that they were going to spin off with their topicus business so they were going to list shares of topicus and everyone's all excited because this is a fast-growing integrated software business. People thought this was a real value creation mechanism that Mark Leonard at Constellation Software is very famous for these kinds of things. And now that's not happening.

And we're now in a waiting period to see if they're going to be listing those shares. So that is in a holding period. Simon, Bitcoin is in a holding period. Simon, Bitcoin is on an absolute tear. What's going on here? We get pretty much the same opinion on everything. I'd say we're very, very aligned on our investing strategy. You're bullish on Bitcoin.

I am still like the boomer who doesn't understand it. So what's going on here? Why is this thing going to the moon? Yeah, so it's been a really good year for Bitcoin. To give everyone an idea, their year-to-date returns on Bitcoin is about 150%. So that's nothing. That's slightly better than the S&P 500. And I think the reason being is more and more people are seeing bitcoin being adopted uh more widespread a bit more mainstream um around the world so not only in north america

but you can you're seeing more and more um people adopting especially in countries where uh the currency and the governments can be really trusted when it comes to their currency and have a tendency to really devaluate. So those citizens, it just makes logical sense to go to Bitcoin or cryptocurrency in general, but specifically Bitcoin because it has a track record. So whether people want to admit it or not, Bitcoin was found in 2009. And yes, it's been very volatile. It's been up and down. It started very low. But I mean, there is a really a track record behind Bitcoin. It is very secure. It's decentralized, so it's not controlled by any entity. And with

the recent use, obviously, of PayPal, but Square before that, Square and their Cash app, I think that's really put fuel on the fire for Bitcoin. That's my personal opinion on what has been driving the price specifically for the past two months. It's been really, really crazy and really interesting. So it's definitely been a really good investment for me. And it kind of goes back to what we were talking last week, too, when I only have a small portion, a small position that I started initially in Bitcoin. And it's grown into a decent one over time. But it goes to show that I knew Bitcoin would be a riskier investment. So I only put a small portion of my portfolio and it's worked out pretty well.

Now it's coming a decent size. So it goes to show that when you invest in something that could be more volatile and riskier, you know, there's still a lot of upside that you can attain even with a small position. So I wanted also to quick note on that, so if people are looking to get exposure into Bitcoin, whether it's directly or indirectly, and how you can go about that. So personally, the site I've been using or the software has been ShakePay. So it's a Canadian company. There is a transaction fee that's not very low of 1.75% per transaction. But the convenience of it, you can do Interac e-transfer. I've had really good success with them.

So that's the one I use personally. But some of the other big platforms are Coinbase, Kraken, Binance that are pretty well reputated as well. So if people are looking to get started a little bit, those are some of the platforms you can look into. And if you're looking to to get started a little bit those are there's some of the platforms you can look into and if you're looking to get exposure but you don't want to be holding the cryptocurrency or Bitcoin specifically that's fine you can actually like I said if you want to invest money in square PayPal you'll get some indirect exposure with that another way to do so would be Nvidia or AMD. People might wonder a

little why because when there's miners, so people creating the cryptocurrencies or Bitcoin, and I say cryptocurrencies because obviously Bitcoin is a type of cryptocurrency, but there's all different kinds of them. But Nvidia and AMD are actually power the chips or in the case of nvidia the gpus that are used to be mining or creating those bitcoin and cryptocurrency so that's another way if you want some exposure and one that i learned yesterday and i don't know if you knew about that one brayden before i texted you but shopify actually allows merchants to set up within their stores to accept cryptocurrency payment so if sellers want to accept Bitcoin they can actually do it off of the Shopify platform so that's something really interesting that I didn't know Shopify actually offered yeah and you bring up good points because Shopify, Square, PayPal, them offering this.

We'll talk about Square on another note because they're very bullish on Bitcoin. The CEO of Twitter and Square, Jack Dorsey, loves Bitcoin, and Square actually holds Bitcoin on their balance sheet. I'm not a huge fan of this, but this is something that they do. But those companies providing the merchant solution between it actually being used and have real utility makes me think, am I missing something here? me think, am I missing something here? Like, is this is this going to, it's going to be one thing that I just wish I didn't miss out on or wish I didn't wish I paid more attention to. And when I see news come out, or other companies kind of solve that merchant consumer problem, that the same way that Visa and MasterCard solved the problem of merchants and consumers and digital payments, and their meteoric rise because of that, it validates its legitimacy

as a real thing. Now, it is way too volatile right now, in my mind to be a functional currency but this is this is legit i mean i don't know if these companies are using it to drive more top line because they're looking at it as another revenue stream probably maybe but that doesn't matter if it's actually providing the ecosystem for it to be functional. I mean, hey, this is pretty legit. So I can see why it's rising off that. So it'll be interesting to see how it all pans out. But in 2020, financial markets are insane anyway. So I don't know if I can see the forest from the trees with some of this stuff.

So back on that same note, it's been a wild ride for retail. I live on Queen Street West in Toronto, which is where small business has traditionally thrived. It's a pretty sad place these days. I mean, small business retailers, it's not been a good year for them. I mean, that's, everyone knows that. They're all being replaced by silly looking cannabis stores that can't differentiate each other from what their real branding is. But that's another show on its own. So what's going on with the big retailers there, Simon? Yeah, I mean, for the most part, it's been really

consistent, you know, consistent story. So you have the big winners and the companies that really invested heavily in online, in their online present and multi channel as well. So those companies are really thriving in the pandemic. So it's really the winners just keep on winning. And it's sad to see because like you just said i live in an area that's typically really booming in ottawa as well um not too far from downtown and that's one of the reasons why we actually bought here and a lot of small retailers are struggling unfortunately uh but the big ones i'm thinking here like amazon obviously uh but also Home Depot, Target in the U.S. Lowe's is doing much better as well. I'm trying to think of other names in terms of retail, but I guess Etsy technically would

fall under retail if you stretch it a little bit. It's a platform. But all those platforms that really invested before the pandemic started, and you can say they were prepared for it. Obviously, they probably didn't see a pandemic come. But those are just the big winners are keeping on winning. And unfortunately, the old school, not necessarily only the small merchants, but also the big department stores are really struggling. And one Canadian one that I wonder about, I I don't know if it's still publicly listed but you know like if the bay is publicly still publicly listed I know Sears and

the bay have both just evaporated in terms of value yeah and I mean the bay is just a good example right it kind of represent the whole like jc penny macy's and all that in the u.s and canada we have the bay and i was talking to uh to my girlfriend about that i'm like you know what i i don't see the bay being still a company in like five to ten years from now i just i don't know i don't find it attractive to go there myself their merchandise typically is not great but also i think their website's not great. And I just wonder if they'll really be able to survive much beyond the pandemic. That's just me. Maybe I'm completely wrong, but I kind of have them in that bucket of

retail losers, if you'd like. 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. Yeah, there's a big bucket of these retail losers, and it really comes down to what you mentioned is, did they invest in that omni-channel experience? they could figure it out quick enough to get this omni-channel experience off the ground and try to catch up at least. And so it's unfortunate, but the big winners keep getting bigger. I've seen memes of, you know, like here's Jeff Bezos crushing every small business in America. And it'll be like his face on top of like Mike Tyson. And I mean, it's sad, but it's just the reality of what's going on.

All right. Enough of the depressing news. Let's go on a bit of a rant here, Simon, because we did last episode about WellHealth. We kind of left the episode with, okay, sure, they have this digital wing that does about 20% of their revenue. The other 80% is 19 health clinics in Vancouver. So we kind of left it with, okay, does this business really deserve a 34X or probably more? I think it was a 46X sales multiple. I don't have it here in front of me, but whatever it is, it's a lot. Does this business really want this really, really high multiple business that you expect high margins,

you expect recurring revenue, you expect exceptional software technology. And well, when you dig into it, it's not that at all. It's mostly a clinic business that simply does not warrant this kind of multiple. So that's kind of where we left it. Would you agree? Yeah, no, exactly. There's more to say. I'll just put it that way.

There's more to say. And this is part two of we did a little bit more digging, and today I just couldn't believe some of the history of this business. So let me just preface it with this. This company is very good at finding good PR. If you Google the company, there'll be websites and very legitimate news sources saying WellHealth Technologies is revolutionizing healthcare. And so let me take a step back. So this is a TSX stock.

If you didn't listen to the episode last week, it's a TSX stock, well.to, trades on a TSX, and they're a Vancouver-based company. So they're very good at getting PR, and they're very good at selling some mission statement. So I'll start there. This company actually in 2015 raised a ton of money, over $600 million in Vancouver for a lifestyle yoga business called Canada Yoga Inc. Okay. And Wellness Lifestyle Inc. is what it became. And then a few years later, so they were trying to make all these acquisitions in yoga and lifestyle.

And well, that doesn't exist anymore. So you can just figure out how that went. Later, 2018, they changed the name to Well Health Technologies. Okay, notice how they throw in the technologies because they want high, they want high multiples on this business, of course. So they went from this yoga apparel business that is trying to follow the steps of Lululemon to raising tons of cash, moving on to the TSX venture, doing this reverse takeover with a VC, and then buying health clinics in 2018. February 2018, they bought six health clinics. Later that year, they bought 13 clinics on August 18th, and then they started buying medical record services, And then they started buying medical record services, all local to Canada and almost entirely local to British Columbia. So they were doing all these like, let's slap a bunch of acquisitions together and try to boost the top line.

Okay, sure. A lot of successful software companies do that. And it works. I own a few, so I'm not going to bash that. But the problem is here, is that they grew the top line all this way, but diluted the business so much through these additional offerings. diluted the business so much through these additional offerings. And EBITDA, from a net income perspective, it has gone nowhere. So revenue in fiscal 18 went from $9.1 million. Fiscal 20 is about $48 million. 20 is about 48 million. And the revenue estimates for 2022 are 120 million. But net income actually decreases. And on a diluted earning per share, it's a joke because they're diluted in the business so much. And this mismatch and really confusing story that this business is

creating is really suspicious to me. And I am early on my understanding of what's going on with this company, but I didn't like what I saw based on the last episode talking about this business. And now I'm really concerned. And Simon, we saw some just shocking stuff on the internet today. And it seems like the company is very good at selling a mission statement. But what is the mission? I can't figure it out. What is the mission? I can't figure it out. Yeah, I mean, I'm not sure either. And to me, it was not a company I was interested in investing in even last week when we talked about it.

And we did some research. And I think the biggest reason for that was it's getting into a field that there's much larger players like we had mentioned. And I was having trouble to see how they would even grow that quickly in the Canadian telemedicine market even less worldwide and now that we're looking into this my biggest concern and the biggest red flags with everything that you mentioned but also just looking at this and just kind of asking myself, like, OK, are they just kind of acquiring whatever seems to be the hot kind of trend right now? Because it really sounds like it.

And they don't seem to have a focus on really what they're trying to do, going from yoga apparel, then purchasing clinics. And then all of a sudden, like, oh, let's do telemedicine. OK, well, you know, try to compete with Maple and Dialogue, first of all, in Canada. Let's see how you do, and then we'll talk. And I don't think they'll do that well there. And I know, like, you know, people can say, oh, Simone's Teladoc, and of course,

he's not going to like competitors. And I'm actually pretty interested in seeing what Dialogue and Maple do. Well-held, I mean, I don't, I really don't see the investment thesis there. And just to give you an idea, Teladoc was founded in 2002. They've always been in telemedicine. They went public five years ago. Granted, they're trading at a rich multiple, that's for sure. But they are growing quickly. And they've always been in that space. That's been their focus from the get-go.

So that's already a huge difference where Wellheld seems to be flip-flopping all over the place. Like, I don't know, two years from now. Maybe next year they'll get into Bitcoin trading, Braden. Yeah, whatever's hot. Whatever's hot, they're going know convince investors that it's a good idea to give them more capital and then go make these silly acquisitions here's here's the bottom line last episode we were talking about how not looking at the backstory which i find very important to me is like okay what's what's the backstory of this company? Without even knowing any of that,

we came to the conclusion with, okay, it owns these healthcare clinics in Vancouver, but why does it demand a 40 times sales multiple for a company that's very local to Vancouver? It doesn't check off those two boxes, which is if it is truly software, it should have high gross margins. And we said, nope,

does not resemble software gross margins because the business is actually in-person clinics. Okay, sure, doesn't meet that check. And two, it's not scalable at all and can't go outside these borders. Doesn't meet that check. So why is it trading at this price? And then we dig into this. It's just really, really confusing. So here's the bottom line. I hope I'm wrong. I hope I'm completely wrong. I don't think I am, but I hope I'm wrong. I hope that this new CEO figures it out. They make some awesome acquisitions as they continue to do in their digital health segment.

And it goes to 10 billion in market cap and everyone does well. And that's great. I hope that's, I'll sit on the sidelines for all of it, but I hope, I hope that happens. I just don't think it will because something is fishy here. I encourage if you're listening to this and you're a shareholder, just dig into this, just do a little bit of research on the backstory. There's something going on here and I can't pinpoint it. And so Simon and I are going to continue to monitor it. But, you know, we are very, very optimistic investors on this show. This is the first time ever we've come out with like, what is going on here? This is a short target. Like this. So we pretty much go on every single pitch. We go long, but this one's really strange,

so we're a little off-put by that. Simon, we're going to talk about our investing process. We're going to talk about what we do. This has been a question that we get all the time, I get all the time, and we haven't really formally talked about on the podcast, is what is your idea generation process in terms of, you know, the stock market, you can have decision paralysis. There's so many options.

There's so many great companies. Where do you start? And then how do you go from idea generation to starting a position? So I'll let you take a crack at this one first yeah no problem so um i'm for me i think we're a little different in terms of where we start and i don't think there is a really right or wrong approach to this so i'm not a big user of screeners to be honest usually the main thing i do when I use screeners is I use them if I want to, I'm interested in like finding some nice small cap stocks. So I'll usually use screeners for that. So I'll screen for under usually 1.5 billion. That's the one I use. And then I'll look for increasing sales at about 15% a clip or more per year. And I want to see positive cash flow or very close to

it trending to be positive. Earnings, I'm not as concerned when I look at small cap stocks. For everything else, typically what I'll do is I'll kind of just be on the lookout, whether I'm looking at different YouTube videos, reading articles, just things that I use in my everyday life as well, other podcasts. I'll try to get ideas like that. And then obviously, sometimes other podcasts, you'll get a bit of a breakdown of business that might pique my curiosity. And then I'll start digging more on my own and doing some more research. So that's the way I do it. Maybe it's, you can probably call it a bit like Peter Lynch, I would say, in terms of strategy and just kind of getting to to find walking to the food court. And then, yeah, exactly. The old Peter Lynch window shopping at the mall for stocks to buy, not not things to buy.

Yeah, I mean, it's one of the reasons why I own Apple, right? It's because I use their products. I think it's really sticky. So that's the approach I use. I'm not a big screen guy in terms of finding companies, but it shouldn't really matter whether you use screens or use an approach a bit more like me. It doesn't matter. You're just using that approach to find a business.

Once you've found a business that is intriguing to you, then the first thing I'll try to do is I'll kind of go on their website and just look around. Just see what they're selling, look at their mission statement about us. If it's a REIT, I'll try to see where their various facilities are. But if they're offering products, I'll try to look at the different products sometimes I'll even look at some of the reviews on YouTube online just to see get a sense if people really like their products and how sticky it is I also like to dig in a bit more and I think you know that I like to listen to earnings calls more than I like to to read the nitty gritty of the actual like annual statement. I do enjoy like hearing the tone of voice and so on from the CEO and the senior management team.

So I'll listen at least to two earning calls, but oftentimes I'll do at least, my average is probably five. And I want to do at least a couple of annual calls but also some quarterly some more recent quarterly calls I like to look at Glassdoor just to see how the employees rate their CEOs because I think that's something that's really underrated really like taking care of your workforce and having happy employees I think goes a really really long way and that's even more true when you look at tech companies, because there's really a big fight in terms of talent. So if you're looking at a tech company, you want to see a high CEO rating. I also want to make sure and that probably goes back to

the well help, I want to make sure the CEO has a really good long term vision and is not making short term moves. So right there, I think well-held would be right off the bat. I would just stop right there because there's clearly a lack of vision. I don't know if that's the new CEO has a better vision, but that is something that I really look for and I want to see consistent long-term vision. If there's constant flip-flopping, that's a big red flag because I really don't know what to expect from the company then. I'll read very thoroughly the management discussion and analysis. That's really, really important for me. And obviously, then I'll start digging into the financial data, so the financial statements. Make sure you look at the footnotes oftentimes when

you read the financial statement because that's where you find some of the best information, especially when it comes to debt. You'll have more details about how it's laid out, the interest rates and so on. And one last thing I do like to look at is the supplemental financial data, especially for REITs. financial data, especially for REITs. I've mentioned that before, but it's a great resource for REITs because most REITs will actually break down FFOs, so funds from operations, and adjust it from operations there so you don't have to calculate it yourself. So those are kind of an overview. Obviously, I look at other things, and I actually even have a spreadsheet where I have different ratios that I want to look at. I'll look at the market cap and all these different things.

I have about like 25, 30 lines. And I always like on when I'm looking at a business and I'm really thinking of starting a position. I also have a kind of small paragraph of investment thesis for the business. And I save that and that whole spreadsheet that I have with the various ratios that I look at I save it so that way I can look at it a year later when they do their next annual call and just to make sure that the the full investment thesis doesn't change because it's really easy to forget right so you kind of get back

into that mindset so yeah I know it's a lot of info at once and obviously I look at other things, but that's kind of the mindset that I use when I look at a company. 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. I like that you brought up Glassdoor ratings because that is now part of the Stratosphere score. Do they have... I do. I use it for every company now. Do they have good ratings and do they have good management ratings?

And out of curiosity, I just had to look. Well Health, they actually have pretty good Glassdoor ratings, 87% CEO approval. If I have the company correct, Well Health. Oh, this might not be Well Health Technologies. Hold on. Yeah, there's more. I think there's another Well something.

Only three reviews. 33. Oh, yeah, not the best. 33% would recommend to a friend. That's actually the one that I look at the most is that stat. 33% would recommend. It's not, it's not, it's not looking pretty good. There's not a lot of reviews, but not looking great. Anyway, so compared, hey, I was just going to compare quick. So I was, I Googled Teladoc Glassdoor, 95% approval for their

CEO and 71% would recommend to a friend. See, that's very different. That's double. You can see the contrast. That is double. Yeah. Interesting. This is very, very small sample size on Glassdoor for well-health. But, I mean, you can get a pretty good idea.

I do like using that as well. So for me, it's quite a lot different. I'm not going to lie. So I do start with screeners typically, unless it's an idea that I just have come across, which happens all the time, and it can go on my watch list, and I've never even seen it in a screen ever. That does happen.

But as an analytical guy, I am an engineer. I am a math nerd. So naturally, I'm drawn to numbers. It helps me avoid mistakes if I can screen for some characteristics and start fishing in a pond that I think already has a lot of fish, a lot of good quality fish for a long time to come. And that comes with safe balance sheets. It's growing. The business has, you know, X, Y, and Z characteristics. And if I have a list of, you know, 20 to 30 companies that I want to dive into, that's a good start for me. And I'll run all kinds of screens. And you'll notice the same names come up over and over again. And that's

typically a time to do some research. But screening for stocks is just the starting point. And you want to be very careful about how you're screening. When I started investing eight years ago, I screened for stocks with low price to earnings ratios. Don't do this. This is a bad idea. Typically, if you screen for stocks that have low PEs, you're going to find cyclicals, you're going to find banks, and you're going to find a bunch of companies that the market really doesn't like. And guess what? The market's right more often than not, more on a long term, more often than not. So don't start with that. That's a little tidbit. Start with things that matter, like revenue growth, like free cash flow, like their balance sheet being safe, having reasonable total debt to equity, high current ratios, have cash on the balance sheet, these kinds of things.

And then maybe if you want to have upper limits, like I'm not saying I'd do this, but say you don't want to buy stocks that have PEs of over 50. Sure, you can go ahead and do that. Don't start a PE of less than 15. I mean, you can read the intelligent investor and be like, Oh, Ben Graham buy stocks under 50, you know, P 15. Don't do that. Okay, so once I've screened for a list of businesses, by the way, Stratosphere has a stock screener. It's really powerful. Go ahead and check it out. So once I've gone there, I'm doing the same kind of things you are. I'm going to their website.

I'm going to their investor relations. I'm reading an annual report. I'm looking at various different articles about the business. I'm checking to see if there's podcasts about it. Some of my favorite writers on Twitter, see if they've done any deep dives and try to understand what the moat is, if it exists. So I don't want to go on too big of a tangent here, but my framework is pretty simple. I'm going to just skim through it quick. I want proven top lines like revenue and free cash flow growth rates.

I want high reinvestment opportunities, so high return on invested capital or return on equity. I want to see those over 15%. Those are typical things that I'll screen for, you know, businesses that have durable long term high return on invested capital produce value for shareholders. So that would be a good thing to screen for. And then there's qualitative stuff like are they in a secular trend? Are they atop a global growth sector? Are they scalable? Do they have high gross margins? Well health? No. Doesn't check that box. They have a conservative capital structure. All right, here's the one, if you listen to this podcast, you know I'm so keen on.

This is part of my checklist, which goes into the stratosphere score, by the way, this is part of my checklist, which goes into the stratosphere score, by the way, is do they have pricing power? If they don't have pricing power, I'm done. That's it. It's instantly thrown into a pile that I just call too hard to figure out. There's lots of commodity businesses that do well, and most of them don't. That's just that's just proven long term factor that it is very hard to create value when you are in such a competitive commoditized product. And that's just like a check for me is do they have durable pricing power? And if they don't, the moat's going to be non-existent or very small. So that's another thing. Do they have network effects? You know, does this product getting used more compound on itself? Those are network effects.

Like think of social media as having network effects. Think of Visa and MasterCard as having network effects. The more people who accept the cards, the more people who are going to become users of the card. And the more people who are users of the card are now going to create more vendors, merchants accepting the card. Next thing you know, a couple iterations of that and you have these global businesses with really, really sticky rails that Visa and MasterCard have built. And that's why I talked about earlier in this podcast is the fact that I always, you know, on the other side of the Bitcoin bulls. I'm still not there yet, right? But the fact that an ecosystem is being created for it to be accepted and used is creating actually network effects in

its utilization, which is important and that matters. So that's important. And then very lastly, a properly incentivized management team. Charlie Munger, co-chair of Berkshire Hathaway, always says, follow the incentives. If incentives are aligned, it'll probably make sense. Is the management team being incentivized to grow earnings per share? If so, then they might do wrong capital allocation decisions. This is just an example. They might make wrong capital allocation decisions because their metric that they're being tracked on is earnings per share. Now, I can go ahead and buy back a bunch of stock and boost earnings per share without actually growing earnings. So that might

incentivize the wrong capital allocation decision because of their incentives. So again, if you're incentivized by earnings per share, and I can buy back stock to meet my target without actually doing anything to make the business better than I've met my target, when that may have not been the right capital allocation decision for the business long term. So these are all kinds of things. Again, this is listed on Stratosphere, my full investment philosophy and framework. So that's where I go. I'm very, very analytical.

So that's where I start, Simon. Yeah, no, and those are all things I look at as well. You definitely went into more detail than I did. And the management incentive structure is really important. Because if it's really out of whack, like in some cases, and can really create like such an incentive that we've seen fraud in the past because management wanted to boost those numbers. So that's obviously that doesn't happen that often, but that's really something that's important to look at. But like I said, I'm big into numbers too, but I have an approach to one thing that I didn't mention that I like to invest in is I also want to invest into businesses

that I believe will make the world better. And that's just a personal philosophy. And I know we've had questions about investing in oil, and that's fine if that's what you want to do. Everyone has their own investing philosophy. And Brayden mentioned he uses screeners a lot. And that's fine. That's a way to look at it. I think you can get different ways to get started. But there are things you really should be looking at. And some of the things we mentioned are really important. But for me, the last big thing I look at is, does that company make, in my view, the world a better place?

So that's why I've been steering away in the past couple of years of oil stocks. That's just a personal belief. And I'm, you know, there's probably a lot of value plays in that right now. But that's, that's one of the things that I look at. And if I don't think they are making the world a better place, then I just will just not invest into them. Whatever the, you know, however good it might look on paper. And no matter how much cash you're generating whatsoever. It's just Yeah, if I can't believe in the business in terms of making the world a better place, I won't invest in it. Yeah, that comes down to two, right? Is you're looking at something like that, and seeing in your own lifetime, a potential terminal value of zero.

So like, how do you model that out? Right? Like if you, if you, if you think the terminal value potentially in your lifetime is, is zero, then it's really hard to back that longterm as an investment.

Yeah. And I, like, I don't know about you, but I personally would not be able to invest in tobacco companies. That's just my personal belief. I would not be able to invest in them, no matter how attractive the valuation is. Can't go for a quick dart?

No, no. I'm just messing with you. We have a question from the audience. So this was on the anchor link that we send out, that we broadcast. You can go on there and record a voice message, an actual question. So our first question from Thomas Davidson Park. Great guy. I've met him. Absolute beauty.

Here's his voice message. Yeah. Hi, gentlemen. My name is Thomas. I had a question regarding Tencent, which i know you guys have talked a lot about um the fact that it's an over-the-counter uh stock um is that to provide any additional risk i know you touched briefly on the fact it's a chinese stock but the fact that it's not even listed on one of the like leading exchanges i guess um yeah just wondering about that thank you okay. Okay, so yeah, that's a great

question in terms of is Tencent a risky play? Or how does it affect the investment thesis because Tencent is listed on the over the counter market? So the way I see it, it's not necessarily a bad thing for Tencent. And I know Braden and I discussed this and he'll go into detail as well. Really good question. So over the counter it's really important to know that not all companies are created equal when it comes to over the counter. So as a general rule over the counter can be risky. The main reason behind that is it's not as regulated as the big exchanges like the New York Stock Exchange, the TSEG, the NASDAQ. Obviously, there are some other big exchanges as well. It's typically less expensive for companies to list on these exchanges. So the fees are way smaller than the big exchanges. So that creates

an incentive, especially for smaller companies to go on there. problem is a lot of these companies are poorly run. Some are like borderline scams. There's a lot of penny stocks. There are a lot of companies actually get delisted because they do not meet the requirements from the major stock exchanges. And that's actually one of the reasons why you'll see the reverse split. So you'll have companies, for example, I think Auroa Cannabis did that, is they did a reverse split maybe six months ago because their price was getting too low. That's never a good idea because they're trying to basically stay on the exchange. So for every 10 shares that you have, they give you back one because they want to jack up the price of the share. You still have the same percentage of the company, but it's a way for them to try and stay on the exchange.

That's usually the reason behind it. One of the biggest risks for a lot of these companies is the liquidity. So liquidity will typically be much lower. And I say typically because there are some exceptions to that like a Tencent, like a Nintendo, like a Nestle. Those are all over the counter and you'll notice that these are all foreign companies that are listed over the counter. So for those companies I don't think it's a really an additional risk to have them over the counter because they're really established companies. For a specific question for Tencent I, I mean, there is the added risk, like you said, of being listed in China.

So that is a risk in itself. But I don't think the fact that it's OTC really makes much of a difference, because it's such a large company. And I would say the same thing about Nintendo or Nestle, for example. And those are just three. There are some other bigger companies that are listed. Most of the big ones are actually foreign companies. I think that was really well put, by the way. But I think the first thing you said, sums it up, is not all OTC stocks, over-the-counter listed stocks, are created equal.

over-the-counter listed stocks, are created equal. You can get penny stock fraud to $780 billion market cap, 10 cent, like your question, and everything in between, right? So here's why in Tencent's specific example that it doesn't really matter. And the reason for that is currently U.S. listed Chinese stocks like Alibaba, JD.com, these big behemoth companies in China that are listed on US exchanges. So they're not over the counter. They're actually listed on US exchanges because they want access to capital markets here in North America. So they do that. Now, the Chinese government in mainland China does not let U.S. auditors audit their books.

So two days ago, the SEC has come up with this plan, and it's going to be in limbo with the U.S. election. Like who really knows if they're going to actually execute on this and bring it forward and really care about it. Basically, they have to change that if they want to be listed. So there's been all these talks about U.S. stocks being delisted if the Chinese Communist Party doesn't agree to what the SEC is putting out, which is that they need to be able to audit them. And I think this is a completely fair request. The rest of the world agrees to these fair auditing agreements. So why is it any different? Anyways, that's a topic for another time. that's a topic for another, another time. So when it comes to Chinese stocks, like Tencent,

is the protection of them being listed on an exchange, you know, having that legitimacy doesn't mean anything, because even the big, actual listed stocks, like JD.com, like Alibaba, listed stocks like JD.com, like Alibaba, those companies are still not audited by US auditors. And that's why you get people who just go, I don't trust it. I'm not investing them at all. And I get that side of the argument. I completely understand why. So in this exact scenario, and your question, my short answer is it doesn't really matter, but not for a good reason. Right? Like not for a particularly good reason that it doesn't matter. It's actually a bad reason that it doesn't matter because we lack transparency across. across even if it wasn't over the counter and say they listed on the nasdaq nothing would change in terms of transparency uh so the short answer is it doesn't matter for all the wrong reasons

um that does it for this week guys thank you guys so much for listening it's been great support lately uh getstockmarket.com and you can go on Stratosphere. So this is the Canadian Investor Podcast. And I finally have memberships in Canadian dollars. I apologize to everyone who's like, I don't want to pay in US dollars. Sure, that's fine. It's in Canadian dollars now at the exact same price as the U.S. dollar listing. So now it's a sweet deal. Now it's a great deal. But I feel very good about doing this for all the Canadian investor pod listeners.

So GetStockMarket.com will bring you there. We'll see you guys next week. Bye-bye. The Canadian investor is not to be taken as investment advice. Braden or Simone may own securities mentioned on this podcast. Always make sure to do your own research and due diligence before making investment decisions.