The Canadian Investor - Buying US Stocks in Canadian Dollars and Position Sizing

Episode Date: November 15, 2021

In this release of the Canadian Investor Podcast, Braden interviews Erik Sloane from Neo Exchange to discuss the new Canadian Depositary Receipts (CDR) products. We also talk about position sizing and what to make when a CEO talks about their company’s share price.  https://thecanadianinvestorpodcast.com/ Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital https://www.neo.inc/en/services/raising-assets/canadian-depositary-receipts Stratosphere 🚀 https://www.stratosphereinvesting.com/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. Live from the great white north, 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. What's up? I'm Brayden Dennis, as always, joined by Simon Belanger.

And Simon, I was texting you today in my car, and Siri said, Simon Belanger? So I really wanted to call you that on the podcast, but maybe next time. It doesn't have the French accent. I'll tell you that for free. I mean, it does even a worse job than I do saying your name. And that's impressive. You know what probably does a worse job is Google Maps. If you go through Montreal, when they try to say the streets uh it's pretty hilarious i would just try that out once if you go to montreal i could see that all right well simon and i we are caffeinated up this afternoon for the recording i thought i was caffeinated up on two coffees here and simon is on his sixth coffee. I don't even know how you're not shaking. That is truly impressive. You know what? I do know, though, if you drink black coffee, it's good for you. So at least that's about a few really relevant and actionable topics like the number of stocks that we personally hold and what we think is a reasonable amount of stocks to hold.

podcast, I sat down with Eric Sloan, the Chief Revenue Officer at the NEO Exchange to talk about the very popular CDRs, the amazing new way to buy US companies in Canadian dollars on Canadian exchanges with this new invention that they teamed up with CIBC on. So I figured I want to know more about this myself. So let's get Eric here on the podcast. And it's a really great discussion. So that is in this episode. Later, we will kick it over to the interview. All right, Simon, let's start off here with the number of stocks to hold. And I'll go first here, but chime in at any time. Obviously, this is not financial advice. This is completely up to each person and their situation, their risk tolerance, and what you feel comfortable with. So how many stocks is a good number to have? And I thought to myself, well, how many do I own as of today?

And I own today exactly 17 stocks. Simon, you and I did not plan this at all, but you own exactly 17 stocks as well. Yeah, yeah, that's it. I mean, I'm excluding the ones that my wife owns, but the ones that I own in my own personal portfolio, I was counting. And yes, 17 exactly. I am excluding here ETFs, but individual companies, exact same as you. That is just a random coincidence. There's nothing really to, don't look too into that. But that is the number of stocks that I hold today of individual positions. Now, I actually think of it more as 14 stocks because I couple a few duopolies. For instance, Visa and MasterCard are the exact same investment thesis for me. Moody's and S&P Global are largely the same thesis.

Constellation Software and Topicus are basically the same company. Constellation Software and Topicus are basically the same company. When I think about that, it's probably actually around 14 positions that I actually think of as investments because I do couple some of these very similar businesses. Now, this is a completely arbitrary number, like 17. Now, there are a few companies I would absolutely buy today and not sell any other positions. So perhaps it gets up to 20 at some point. And I change my mind so much on what's the perfect stock portfolio construction and how many names are in there. But at the end of the day, it really is just such a personal decision. And it doesn't really matter that much unless you go out of a range that I think is just too many.

So we'll talk about that. I analyze businesses full-time. And a lot of that research, by the way, it's available at stratosphereinvesting.com. So given that, I know these 17 companies well, and I want a piece of their future. And I do that via their publicly listed stock. I could see myself having as much as 25, to be honest, and that'd be fine. But beyond that, I think it gets a bit silly. If you have, say, more than 40, just own an index fund and spend zero seconds per year managing your portfolio. You can buy the NASDAQ 100, own 100 stocks, and literally spend zero seconds per year managing your portfolio. Now, some people are hyper-concentrated.

Say they own 10 or less stocks. That's cool, too. I mean, I'm super concentrated as well, just in the position weighting. So I'm good with that. The problem with that is that there's concentration risk. If I really love 15 ideas at any time, and it's hard to compete with a portfolio of less than 10, if all 10 do extremely well from a performance perspective. That being said, concentration can create generational wealth. But if your thesis is wrong in any one of these ideas, that really hurts your returns. So my opinion, just my opinion,

is the sweet spot is between about 15 and 25 companies for self-directed investors who are taking this pretty seriously. If you go super concentrated, that's cool. Just remember that concentration is the absolute creator and destruction of wealth. And on that same note, rule number one is don't lose money. Rule number two is don't forget number one. So consistent compounding requires consistency as the name suggests. So if you have a big setback, it can really hurt you. Yeah, yeah. Those are all really good points. And yeah, definitely for you who's doing that full time, you definitely have the time to look at different companies a bit more than I would. And I'll be honest, for me, the

threshold is typically 15. So at the end of the year, what I usually do And I'll be honest, for me, the threshold is typically 15. So at the end of the year, what I usually do is I'll review my portfolio. And, you know, if I'm too far off from that personal threshold, then I'll probably remove a couple of holdings that I don't have, let's say, a strong of a conviction anymore. So that's a good approach for people. If you set a certain number of stocks that you really want to have in your portfolio once you get over that you know it's a good exercise to just look back at it look at certain holdings that you may not have as strong as a conviction as you first did when you started that position and potentially remove those holdings like brayden said it's really a

time commitment thing. I think for a lot of people, are you able to put that time in? Are you able to keep up with those businesses? And a good indicator if you don't have a hard and fast rule of a number of holding is you look at your portfolio and then you realize, oh, I forgot I had that business in my portfolio. That's probably a good indicator that you may want to reduce the number of holdings a little bit if you forget certain business that you're invested in. to reassess or perhaps put some of that weighting in more high conviction names, which is a perfect segment into position weighting and just a real candid conversation we can have here, Simon, about how we think about position weighting. For me, this is what I do. I use conviction as a non-scientific ranking system of all the companies in my portfolio. I literally put a conviction number of between one and 10 of all of them, and I keep it updated.

It's basically the conviction score that I'm applying is my confidence that I one, understand the investment thesis. Two, my confidence in being able to reliably predict what this company will look like and the industry will look like in five to 10 years. If I have low confidence in what the industry and what the company looks like in five to 10 years, then that's low conviction. But if it should be business as usual for a fantastic business, continued compounding, like most conglomerates, for instance, that's a higher conviction name for me. I mean, there's built-in diversification to the name, and it should be compounding as per usual.

But if the story, let's use the Facebook example for right now. I lowered my conviction in Facebook. I don't own a position, but we ranked them on Stratosphere. The reason why, they just grew revenue at 35%. But right now, our conviction in the ability to understand what's going to happen in the metaverse is very low. And it should be low for everyone. It's very speculative for a company worth over a trillion dollars.

It is quite speculative. And we have very little ability to guess what that future looks like. So that would be an example of lower conviction. And so I try to size my positions in a ranking of conviction. That's what I do, Simon. Yeah, yeah. And I think conviction is definitely a big part of that per position waiting because of course you want to make sure that's something that's pretty heavily weighted in your portfolio you understand quite

well you believe in the business you believe that the business will keep growing uh you know two three five ten fifteen twenty years in the future and what i wanted to add on that, it's important to, well, in my view, position weighting is your biggest tool to mitigate risk. A lot of people think about risk, about a single stock, you know, oh, this stock, you know, you can take, let's say Virgin Galactic, right? They don't have much revenue right now. So, you know, it's pretty easy to look at them and say it's a pretty risky business to invest in. Well, yeah, if it's 50% of your portfolio, I'd probably venture to say, you know, you're pretty crazy to have that much in this one business because it's super risky. They're pre-revenue at this point. They're not profitable. A lot of things could go wrong,

could easily go bankrupt at some point in the future not profitable. A lot of things could go wrong, could easily go bankrupt at some point in the future. The future is unknowable. Exactly. So you don't know what's going to happen there. But, you know, take the same business, Virgin Galactic, and say someone wants a piece of it, but they make it 1% of their portfolio. Then, you, then the risk is really different here because yes, it's the same business, but if it goes belly under, goes bankrupt, that's fine. As long as the rest of your portfolio is not doing the same thing and it's not overly heavily weighted and really growth stocks, you'll be fine, right? You won't be hurt too much. I think that's really a good train of thought for people to think about when they're really considering position sizing, especially

for extremely volatile companies that could be high valuation. It could be also companies, like I said, that are pre-revenues. If you want to share in those, that's fine, but make sure that you position your weighting accordingly. The bigger the position sizing, the higher the risk. Yeah, that's a good point. I think a lot about correlation risk too with that. For your Virgin Galactic example, there's a certain factor on that company, which is super high growth, super speculative. on that company, which is super high growth, super speculative. And if the market is crushing super speculative type bets, they're all going to go down. Regardless of what Fortune Galactic

produces, it will actually have very little to the real business fundamentals because it's moving on factor and momentum, right? And it's the same reason why I believe very strongly in two extremely expensive stocks. Those stocks are the Trade Desk, ticker TTD, and ticker U for the business Unity, the gaming engine. Both of them are up over 10% today, Simon. Not a big deal. But if I look at those two companies, they're super high growth, but they're crazy expensive. They trade both at like 40 plus times sales. I mean, that could be the right multiple given their growth and what the future looks like for,

in this case, digital advertising spend and the gaming engine and everything that that presents. But I have them sized accordingly. I'm going to capture upside if my thesis is correct. And it won't be that big of a deal that I don't have it as a super high concentration of my portfolio. And those two names from a factor perspective will probably move in the short term relatively similar, even if their business fundamentals are not similar. You know what I mean, Simon? There's a certain factor being applied to them, especially with these high growth, super expensive, 50 times sales companies, which seems ridiculous that I even own them. But I do own two of them and I probably should own more based on the recent performance. But that is the kind of thing I'm

talking about where they're not sized as huge. They're sized as two of the smallest position weightings in those 17 stocks. Yeah. And I think that's exactly how you need to do it. Like you're, I would venture to say, I'm going to guess it's probably in the low single digits in terms of percentage of weighting of your portfolio. They're like two and four. Yeah. Yeah. Small. So I think you'll survive if it, uh, each dog gets, uh, you know, cut 50% in price, like you won't panic, you't sell and you know we'd be having a different conversation if each represented let's say 15 20 percent of your right folio then of course it's a completely different conversation but that's something to keep in mind that's

probably your that to me is your biggest tool whenever you're investing to mitigate risk. Just position sizing will be able to help you do that. 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. the Chief Revenue Officer of the NEO Exchange to talk about the CDRs, which is frankly an awesome invention and innovation for Canadian investors. So let's hear from Eric. He's really well-spoken. It was a great chat. And we'll see you in a few minutes after to discuss a few other topics here. But let's kick it to Eric. It's a great chat. Mr. Eric Sloan, welcome to the podcast. Really happy to have you on here. I cannot tell you the amount of requests that we have had from listeners on the show asking about the Neo

Exchange and what CDRs are. So what better person to bring on than yourself to talk about it right from the source directly. How are we doing, Eric? Doing great and a pleasure to meet. Thank you very much for having us on the podcast. Absolutely. So let's dive right into this. But before we talk about NEO and the CDRs, who are you, Eric, and what brought you to working on what I believe is an important project that you guys are beginning right now? Well, thank you. Thank you very much. I'm our Chief Revenue Officer here at NEO. I've been with the organization coming up on nine years now. Time flies.

I might have had a little more hair when I started that journey. But I've seen the organization through a number of different lenses. I started running our product management team, kind of assembling all the tech and strategy around our organization, handing that out to the street, really getting the foundational NEO stock exchange out in the world. And a few years after we launched, I flipped over to the sales side of our organization,

started growing the ETF franchise for NEO and now currently sitting as our chief revenue officer responsible for attracting all kinds of new wonderful opportunities to come and list or trade or consume data from the NEO Stock Exchange here in Toronto. That's fantastic. So let's jump into that then. I think that's a good place to start is defining what the NEO exchange is. And we'll jump into CDRs after. But what is the NEO exchange and what are you guys trying to accomplish broadly? It's a fun question. And in our eyes, when we started looking at the business and really the Canadian landscape and globally exchanges around the world, started looking at where we could have an impact, where there were gaps in the market and where there was something that we as an organization could do about it. its ecosystem, trading, we looked at market data, we looked at the whole capital formation process,

the act of taking companies out to public markets, and really took a hard look at what we thought was working and where we thought change was needed. If I speak about our origin story specifically, NIO is backed by some of the largest buy-side pension plans and asset managers in the country. Names you'd recognize. OMERS, CI Investments, BCIMC, IGM, one of the largest mutual fund managers in Canada. We've got some large banks in our midst. Royal Bank of Canada, Barclays, Virtu Financial, and one that maybe seems unintuitive, but definitely a fit in our world, BCE, the parent company of Bell Canada, also a global telecoms provider and something that comes in very handy in the exchange world these days. But the key for us, our shareholder group is majority buy-side

owned. And that means for us as an organization, we're very focused on doing what's best for our majority stakeholder, long term investors in the business. They gave us the mandate to build something that was different. And if you look at the way we've assembled our stock market, we try and do things that level the playing field for long term investors. And that shows up in a number of different ways across the NIO stock exchange. If you look at trading, maybe two quick soundbites, folks have probably read a lot about HFTs and access to markets in ways that may be deemed unfair these days. We built NIO to prioritize natural investors to trade first. It doesn't matter if an order got there a second, a minute, an hour before you. If it's the same price and there's a competition to

trade, we'll always prioritize a natural investor to trade first. We deliver our market data, real-time streaming quotes out to market. And then obviously the way we work with the corporate community and asset managers in Canada, fundamentally very different, service-oriented. real-time streaming quotes out to market. And then obviously the way we work with the corporate community and asset managers in Canada, fundamentally very different, service-oriented. But we're really stemming up competition here in Canada against our major incumbent, the Toronto Stock Exchange. Got it. Okay, understood. And now what has come out of this is a highly requested feature on this podcast, as I'm mentioning, and we can get to what those are. The people want to know, Eric.

The people, I'm telling you, I can't even explain how many people are asking me about this stuff, not only on the Stratosphere Forum, but also directly through on the podcast. And my answer so far has been, I'm talking to Eric next week and I don't know the answers. I'm going to tell you them when I know the answers. So as much as the listeners, I'm a sponge right now and I don't know all these answers. So I'm excited to ask you. So can we first define what the CDR product is, what it stands for, and just the high level elevator pitch on the benefits of what they are? Absolutely. CDRs, the definition, Canadian Depository Receipts. Depository Receipts is a business. It's actually a long-standing global industry. Some of the

larger European companies in Europe have chosen to use Depository receipts to go public in the US. Some names that might come to mind, you look at like Nestle or Volkswagen, they would trade on US markets as a depository receipt. For Canadian investors, our access to global companies is somewhat limited. We've got pretty good access to U.S. markets, some shortcomings, but trying to step outside of U.S. markets is still a big challenge for Canadian investors. CDRs, I think, are a tremendous way to tackle some of those barriers or boundaries that we haven't yet overcome to enable Canadians to diversify

their investments into global companies. To start with, if you look at the foundational benefits or elements attached to it, CDRs are actually listed on a stock exchange. They look like any one of our NEO exchange publicly traded companies or any other Canadian company you might otherwise buy listed on a stock market. They would look the same as ETFs listed on an exchange. They get a ticker, they have a price, they have a quote, you can interact with them through that. But CDRs go a step further. And I'd love to take full credit for the CDR initiative, because I think it's super cool. But full credit goes to CIBC, and perhaps on another podcast

worthwhile to have them in to go straight into the weeds in due course as well. CDRs were really designed to enable Canadians to buy those global companies and address three key issues. One, Canadian investors do not have necessarily access to fractional share trading of US companies. So you look at a stock like Amazon.com, it's about $3,500 US, roughly $4,300, $4,400 Canadian. And as Canadian investors, you have to buy a single share. Well, that's a pretty expensive trade. If you've only got a $10,000, $15,000 portfolio, do you really believe you want to own 30% of your mandate in Amazon? So the first thing CDRs do is they fractionalize Amazon.com stock and others into

a more affordable ticket for an investor. So as an example, Amazon is available in CDR format, ticker is AMZN, same ticker as the parent company, but at one two hundredth of a share. but at one two hundredth of a share. So you can buy that fractional share for 20 some odd dollars instead of $4,000 Canadian. The second thing they do, and I think this is also very powerful, but maybe not always observed from a Canadian investor perspective, they're purchasable in Canadian dollars. So if you look at an Amazon CDR, you buy it in CAD. If you want to go buy Amazon.com stock, you've got to convert your CAD to US dollars.

You're going to pay an FX for that. And it's going to be the retail rate that your banking or brokerage institution would give you. CDR transforms that. You're actually getting an institutional FX rate with the CDR purchase. And in fact, CIBC is taking care of that transformation for you. So first benefit, fractionalization. Second benefit, currency, more efficient currency conversion. And the third, and I think this is going to be the really interesting one longer term, CDRs come with a Canadian dollar hedge, which means in the tagline that has been out in the street now

for a little bit. I think it's really a cool one and illustrates the point. You own the company's performance, not the currency fluctuations between Canadian and US dollars, which in effect you are buying when you buy the underlying US Amazon stock if you weren't using a CDR. Those three, yeah, that's really well laid out. So thank you for that. So fractionalization, currency, and then currency hedging as well. And I think that what this is doing and has, like you said, credit to CIBC for some of this

innovation and you guys as well, is you guys are really reducing the friction and some of these pain points that Canadian investors have. Because yeah, you're right, if you want to own some of the best companies in the world today, they trade on US exchanges and they trade at very high price tags, which is not a structural problem for Canadian broker, sorry, for US brokerages that have fractional share offerings. And those innovations have happened south of the border and Canadian investors are stuck owning primarily, which is a problem that we talk about quite often on this show, is they're stuck owning primarily Canadian companies and primarily overweight certain industries because they don't have access to some of the best companies in the world for the reasons that we just listed. So that's awesome.

So what are the associated fees with the CDRs versus going out to buy the underlying stock? I think you pointed out a good one right out of the gate, which is the actual conversion rates. Getting a institutionalized conversion rate out of the gate compared to a brokerage is probably very useful. That's one for sure. It's a bit of an intangible one. You wouldn't know it

until you go to move your Canadian dollars into US dollars, and that's where it's going to pick up. You still pay a commission cost with your brokerage to trade Canadian listed securities. I imagine for many of the discount channels, you'd pay the same commission for a CDR purchase that you were looking to do. The vehicle itself, and this is really the cool part, so it's all documented in a very long document called the Base Shelf Prospectus for CDRs. There are no management fees. So that's maybe one area where it would differentiate from what you might otherwise interpret from an ETF where they have an MER.

CDRs themselves do not have a management fee attached. So you don't pay anything for the fractionalization. You don't pay anything for the currency conversion. But what you do pay for is the currency hedge. That currency hedge, as stated in the documents, has a maximum 60 basis point or 0.6% fee annualized, and it can't exceed it. And that's actually pretty important for an investor to both be aware of and understand. And I think that's also where the service is. At the end of it, the currency hedges run daily, which is different than most other products that are monthly hedges or even less frequent than that. You're getting a daily hedge to manage the FX currency between the Canadian and US dollar

so that you truly own the company's performance longer term. That's where you pay for a CDR. Okay, yeah, that's really helpful to know. So we're talking about 60 basis points or 0.6% for the currency hedging feature is where the fees are attached to. And I think that that's a reasonable expectation given the fact that you said it's daily, that's happening daily. And that could be one of the big benefits of the actual product. So, okay, that's good. So what are the companies that are listed today? How many listings are on there? We just talked about Amazon.

Can you speak to the other listings that we have in CDR format right now? Certainly. There's nine other live in market today, so a full shelf of 10 available now. There are more coming, but to give you some color on the names that are out and trading in CDR format today, Amazon.com, we spoke about. You've got Google, so it's Alphabet Inc. that's in CDR form. That's in CDR form. Tesla, Apple, Netflix, Facebook, now Metaverse or will be renamed Metaverse in CDR format soon enough. Microsoft, PayPal, Visa and Disney to round out the top 10. As I said, more coming and you kind of get the feeling for it.

There's a lot of opportunity here. And as a result, the more names up and available, the more people find out about them, depending on the theme or sector that folks are looking for. There's tons, tons to do in this space. So, and correct me if I'm wrong, but this is a smart strategy because these are high volume, large mega cap companies. Everything from the trillion dollar firms and down to the payments companies, PayPal, Visa, and Disney too as well. So that's pretty awesome.

And I like the strategy that you guys have gone with. So how many, I mean, maybe you can't give this away, but how many are we expecting to have? Are you guys hoping down the roadmap to have every listed security or is there going to be some market cap cut off? And if I'm getting into your product roadmap that you can't share, just feel free to let me know.

Oh, not at all. Some elements are findable. And, you know, we keep a close eye on how far the internet tends to read into public documents. But, you know, obviously, a shelf of 10 is definitely not the beginning nor the end of this journey. It is CIBC's mission and vision, obviously, to deliver more of these out to market. I think if, you know, we were looking at somewhere in the range of 20 before the year is finished, that'd be a reasonable outcome. I think, reasonably speaking as well, there's probably a universe of 40 or 50 securities that

would make sense, the most interesting, attractive ones to Canadian investors and financial advisors. CDR format is going to Canadian investors and financial advisors. CDR format is going to make a ton of sense. And then, you know, from there, it's probably going to be on a request basis. If somebody's got a real problem they're trying to solve, if we see a lot of demand from investors, we have a nice little tiny link on our website that investors can click through and suggest names. I'm sure we'll get a few from you and your listeners as well. Send them through. Those all help in terms of how we prioritize and send those back to CIBC to actually prioritize future products to come out to market. So don't be shy.

Yeah, it makes sense. Getting that user feedback is very, very critical. So right now, Very, very critical. So right now, these are issued by CIBC. Do you have to be a CIBC Investors Edge customer to buy them or are they available to all the major retail brokerages today? That is a great question. The short answer, they are available to anyone. And they are on every single discount platform, all the major banks, all the independents, look at Questrade, Interactive Brokers. They're in Wealthsimple Trade as well. So all the places that I would say the aspiring trader routine, do-it-yourself or investor, running this for your own purposes for years, anywhere you might go to look to trade stock listed on, frankly, any Canadian exchange, including our own, you'll be

able to find CDRs. Conversely, too, and think about it from this perspective, the main challenge that we started hearing about when we started working on this with the team was for the retail investor. But a lot of financial advisors, portfolio managers have embraced CDRs as well. When you kind of look at the problems they might face, none of their solutions support fractional shares either. So if you're opening up a small or medium sized account and you want to try and fit some of these big US companies in to a $50,000 or $100,000 portfolio, whether it's kids that are growing up, starting investing early. The traditional large-cap U.S. names in their native format may not fit very well. So leveraging a CDR to start those portfolios out starts to make a ton of sense. We're seeing a lot of advisors starting to come into this business running U.S. model portfolios where

the CDR can make a ton of sense for them and bring their investors access to major U.S. large cap names. And in a day like today where these fantastic businesses like Alphabet, the Google parent company, or Amazon, that trades for thousands of dollars USD, retail investors, long-term retail investors, really lose out on the ability to dollar cost average these names. And we talk about how important dollar cost averaging is and a set schedule for a do-it-yourself investor to invest on a monthly, quarterly basis with the extra income that they generate. They have a strict savings plan and they're ready to make it happen with their money. And then they look at a share

of Amazon or Google and say, I can buy maybe one of these a year maybe and then only own that company. And that's a real reality for lots of folks. And it doesn't mean you're not in a high percentile of net worth. It's just the reality of $4,000 just lying around to buy one share of one company creates a lot of friction. So I think that that's a really good idea. Let's get into how they work operationally. We've had a couple questions from listeners and on Twitter when I said that I was interviewing you. Some folks were curious about the dividend payments. Are they distributed similarly to how it works for an ETF? You know, the underlying assets pay dividends and then are paid out via distributions on the vehicle that you're investing it in through? You nailed it.

All the same things are there. The only nuance perhaps to highlight, so you need the underlying company to pay a dividend. Not all the CDRs that are on market today do. I think we've now got a couple that are out there like Microsoft or Apple, I think, pays a dividend as well. That's right. When those are declared in the U.S., those will get flowed back through to the CDR and paid out to Canadian CDR holders. They will be paid out in CAD, though. So just keep that in mind.

If you're looking for a U.S. dividend, You're going to receive your CDR payment in Canadian dollars. Right. Okay. Makes sense. And so to follow up on that, we try not to bore people to sleep with tax implications on this podcast. But it's important for a non-registered or TFSA? How are those things kind of working operationally? That's also a good question. also a good question. And actually, broadly speaking, not only for the dividend, but for the actual CDR itself, it is still considered a US or foreign property from a Canadian investor perspective. So even though it's available in CAD in a CDR, you are still holding a foreign

security. So word to the investor crowd, make sure you do have that W-8 BEN file on hand with your broker so that the right withholding tax is calculated and held back. Otherwise, it's perhaps less exciting. That's right. Yeah. And for those who are wondering that the W-8 form, I'm assuming, I know for me, when I join a brokerage, that is filled out and required basically upon signing up. So don't freak out. You've probably already done the form. Don't worry. When you signed your life away on the sign up of a discount brokerage, you probably already

filled that out. Okay, Eric. Well, this has been super useful, not only to the listeners, but to myself. And I'm really understanding the story. And now that I understand, you know, what the fees are associated with it, the Canadian hedging, the fractional shares, all the friction being reduced for Canadian investors to invest in these large cap U.S. listed names makes a ton of sense.

So we're really excited to see what you guys come out with and the more listings that follow. Where can we find a list of these CDRs available and find out more? Great question, and I'll maybe give you a couple extra pieces of information for the crowd as well. There is a page on our website. CIBC has one as well. If you're on the services section of our website,

neo.inc, in raising assets, there's a section there dedicated specifically to Canadian depository receipts. And there it's got a nice description, how they work, what they work, a couple of frequently asked questions, and you can see the full grid of Neo Exchange listed CDRs separately

and maybe good for the crowd to have on hand as well. Inside the live section on the navigation, there's a link that will pop out for what we refer to as our listings directory. And there you can see the full range of CDRs, NeoExchange public companies, and NeoExchange listed ETFs. Altogether now, I think over 180 tickers covering all of your favorite sectors. If you're looking at the company space, we've got one of the latest crypto trading platforms that just IPO'd on Tuesday this week. We've got some

really interesting ones in the psychedelic space that are worth a look, plus 100 and change ETFs from some of the largest asset managers in Canada, all certainly worth a look. And if you've ever got any questions on it, as you did, very happy to come back in, chat on some of those anytime you like. And make sure we keep you and your audience up to speed with all the progress here at the Neo Exchange. Awesome. That's wonderful. Yeah, I'm looking at that page you're talking about right now. And what we were talking about before, a share of Google is thousands of dollars in US. And right now, the NIO listed CDR is $25.59 as the latest close. And the latest price today was $25.96.

So that gives you an idea. And it's going to move with the underlying asset of actual Alphabet Google stock. And that's something that we talk about so much on this podcast as well as make sure you know, you know, the underlying asset of what you're investing in with some of these instruments or products that are out there. And I like this one because it couldn't be more clear. You are buying Google stock when you buy the Google CDR. So I can appreciate that. Eric, thanks so much for coming on the show and we'll have to have you on soon. And we're excited to follow what you guys are building. Absolute pleasure. Thank you very much for having me and here anytime. 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. Simon, that was awesome. Eric's really well spoken. He is laying out really the basis for the CDRs. The CDRs offer the ability for Canadians to enter some of these large cap US stocks, cap US stocks that the friction on them is very... It is so much friction for Canadian investors to invest in shares of Amazon, for instance. $3,500 US dollars is not a small investment for most of the population. Even self-directed investors that have a lot of net worth $3,500 for one dollar cost average in USD presents a lot of friction even if Amazon might be a phenomenal company we're kind of arbitrarily putting ourselves out of it without having fractional shares so I think it's a great innovation yeah yeah I think it's a great innovation. Yeah, yeah, I think it's a great innovation too. I mean, the only other option would be something like the PowerShares QQQ.

But even then, you're not owning just the one company you want to own. So you're owning most of the NASDAQ by owning those. And the QQQ is really not cheap in itself. It's 300 and something per share, USD. So this is a great alternative. I think BMO may have an ETF that's kind of targeted on tech as well, but there's limited options and you can't really handpick specific companies. So the CDR is a great option for that. It is. So if you're on your brokerage and you're looking at some US stock and then all of a sudden

you realize, whoa, it's trading in Canadian dollars for 28 Canadian. That's because you're looking at the Canadian depository receipt. That's a new thing that came out and CIBC is backing it. All right, let's talk about the last segment for the show today, Simon. This was brought up because of the Lightspeed short report and then him talking about it so much on the call. And it kind of gives you some hesitancy towards the strategy and the management and the business moving forward. So do you want to just take us through what you're thinking here? Yeah, that's exactly it. So I was thinking back of what Dax was saying

about the short report, even though Lightspeed had already sent out a press release in late September after the short report came out to address it. In my view, that was the perfect thing to do then. You get it out of the way. You don't touch back on it. You address it. That's it. That's all. but then dax talked about it again in their most recent call so in my view the only time a ceo should be talking about share price or when there's something like a short report which affects the share price is really when the company will be buying back shares because they have the money to do so. And in their view, the shares are undervalued. Of course, if a CEO mentions this, you'll want to make sure that the

company has a good track record of doing share buybacks because we've talked about it before. There's other ways of using excess money. You can either pay a a dividend you can reinvest in the business there is there's definitely more than just doing share buybacks the big reason for me that it's a red flag it's because it worries me that a CEO is focusing too much on what the stock is doing and to me that's a sign that the CEO is just looking way too short term in view, the CEO should be looking to create shareholder value by building a great and profitable business for the long term. He shouldn't care about short term stock movement because the market isn't looking five plus years in the future. We talked about this recently. The market oftentimes, yes, is forward looking, but what, maybe a year, two years at most that they're forward-looking.

So if you're building a great business, even if it takes five plus years for the market to realize it, the market will eventually realize it. And that's the type of business I personally want to be invested in. If you think about an Amazon, for example, for the longest period, Amazon was losing money, but they were investing so much in the business, building this huge logistics network, this huge online platform, and now we're really seeing how it's paying dividend. And where a CEO is so concerned about the short-term stock price movement. To me, that can lead to decision makings that's not good for the business to focus on the short-term and can be really destructive in terms of the long-term prospects of the business. There's a lot of red flags in general when a CEO is short-term focused.

when a CEO is short-term focused. I'm trying to play long-term games with long-term people, especially in the stocks I own. Playing long-term games with long-term people is a great way to build wealth, especially when you are putting your capital behind them. you are putting your capital behind them. And this isn't a knock on Dax so much. I mean, he's been great. I mean, he's obviously a solid entrepreneur. He knows what he's doing. This business is his baby. So I can see why he's a little choked up about it. And this is just kind of a conversation piece around CEOs that are short-term focused and worrying about the stock price talking about the stock price. It's just really not relevant for long-term shareholders. It's really not because long-term shareholders are saying, okay, that's great, but what's happening with the business? The share price is not the business.

So what's happening with the business? The share price is not the business. So what's happening with the business? And this goes without saying is if you see a CEO, and you'll see this a lot in junior mining or stocks on the TSX venture, is CEOs that are doing lots of interviews about the shares, about the stock. It's like legal stock promotion. And that is ding, ding, ding, ding, red flag, especially if it's paid advertising. And this exists. I'm seeing it all over the place. They're setting a lookalike audience on Facebook and saying, this person invests, they're interested in stocks, they're potentially interested in gambling at this point. Let's serve them ads on our junior mining exploration company about the shares and about how awesome our CEO is and

sell them a story. Red flag. Instant red flag. That's not what we're saying what's happening with Lightspeed, but we're a bit off put here with DAX bringing it up again. And I know we've already talked about that. But it's concerning and it talks about a bigger story, which is align your portfolio with long-term thinkers. Yeah, yeah. Super well put, I think. And exactly what I was thinking, too. I'm not trying to get back on, you know, just just add on to what we said about DAX Da Silva. They clearly built a very good business. We'll see where it goes in the future.

But it was just that aspect of just bring it back forward so early in the the earnings calls. That was a bit concerning on my end. But the other, as we were talking, I was kind of thinking, I guess the other situation where I'd be okay with the CEO talking about the share price is if the share price has had a huge run and they're actually using that to do a secondary offering to be able to invest in the business and just capitalizing on the high share price, getting more financing while not diluting too much. So that's, I think, is a strategic move and can make a lot of sense as long as they have, you know, good ideas of where to invest the money and just not issue shares just to issue shares to have an actual goal they want to accomplish with that new infusion of

cash so that's probably the other the other part but you'll see like you said you can watch interviews of various businesses and i remember watching an interview with the ceo of well-held technologies and the guy was asking him like oh yeah you know what's going on with the share price and the ceo like just you know continued on answered the question, kept talking about the share price. To me, the correct way to or the way I want a CEO to approach it is say, look, we're not concerned with the share price. We know that long term people, the market will see the value in the business. That's what we're building. That's the answer I want a CEO to say when I ask that type of question.

want a ceo to to say when when i ask that type of question i actually emailed the ceo of mty food group like five plus years ago and this of course you did the stock was down for no reason i was trying to investigate the business i'm like what is this roll-up of food court companies? Why has the stock been a 10-bagger, like close to 100-bagger actually? And it's down 10% to 20% today, no acquisition news. And I just sent, I just fired off an email to Investor Relations going like, hey hey i'm just investigating in the business uh there seems to be some a lot of volume on this thing and no acquisition news no nothing and eric i'm forgetting his name eric the c last name but the ceo of mty food group responded to the general investor relations uh inbox and he responded with one line saying,

Brayden, I have no idea why the market acts in the way it does in the short term. Brilliant. Brilliant. I wanted to buy shares immediately. That's perfect, right? That's exactly the person you want running the business long term. So I don't even know why I sent that email out five years ago. This was so stupid thinking back on it.

But that was an awesome response. Yeah, I think his name is Eric Lafeu. Yes, that's right. That's it. Yeah, another good French Canadian. What's with all the French Canadian roll-ups? And why are they all such good performers? It's a answer yeah don't worry about the short-term fluctuation about the market like we've said it before short-term the market is a voting machine long-term it's a weighing

machine so you want it to weigh the company correctly long-term that's right and this aligns everything that we talk about with owning businesses for the long term. If the person running the business is thinking long term, you're off to a great start right out of the gate. All right, guys, thanks so much for listening. We talked about position weighting, how many stocks that we own, CEOs talking about their stock, and an awesome interview with with Eric and I hope you guys enjoy it if you have not checked out stratosphere go to stratosphere investing comm or if that's too hard to spell get stock market comm

will also bring you there try it out it's completely free this year I'm is my mission this month to talk with 20 of you one-on-one on a video call. If you go on Stratosphere and you join the community, there's a link there to book a call with me. And if you have done a trial and you want to join the paid membership, that's totally up to you. You can use code TCI to get 15% off. Thanks so much for listening. We'll see you in a few days. Take care. Bye-bye.