The Canadian Investor - Converting CAD to USD and stock options basics

Episode Date: July 18, 2020

In this episode Braden breaks down a low fee method to convert Canadian currency to U.S. Currency called Norbert’s Gambit. Simon explains the basics of call and put options. We finish the episode by discussing a recent decision from Simon to trim a position that has become a large part of his portfolio.Tickers of stocks discussed : TDOC--- 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

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. Welcome back to the Canadian Investor Podcast. I'm Simon Belanger, joined by my co-host, Brayden Dennis.

We're going to talk today about a few different things. We're going to start by talking about converting Canadian dollars to U.S. dollars and a good way that Braden has found out to do that and save on fees. After that, I'm going to break down options contracts for you guys, keep it as simple as possible, and then we'll finish about some general market discussion and some thoughts to have when you're trying to decide whether to sell or not a stock. So before we get started, Brayden, how's it going in Toronto? It's good, man. Back in Toronto, I've been living up in my cottage or wherever you're from in Canada.

You might call it a cabin here in southern Ontario. We call it a cottage. I've been living up there, but I am in Toronto in the city for a couple of days and then heading back up. The weather has been outrageously good. And yeah, what's what's going on in Ottawa? That's I mean, just, you know, living the dream. No stuff is starting to reopen more and more. Just been enjoying the outdoors. I think we're pretty lucky in Ottawa for that.

We have a lot of federal parks around the area that we can enjoy. There's one on the Quebec side. So we've been going there for walks with the dog, enjoying the lakes. So don't have a cabin or a cottage, but still been enjoying the outdoors and the really nice weather. Right on, man. All right. weather right on man all right so how to like people ask me like oh should i buy u.s stocks i'm worried about the currency conversion fair enough i have the perfect solution for you and a full guide that simon is going to link from my site into the show notes so that you can refer to it when you actually go to do this.

Because this will give you the gist of what you're going to do. But when it comes down to doing it, if you've never done it before, this guide will show you step by step with screenshots. So my screenshots are from using Questrade, but you can use any of the like you can use your broker. Long story short. you can use any of the, like you can use your broker, long story short. So this is what I think the most elite way to convert CAD to USD without paying that currency conversion. Like if you go to the bank, you're going to pay a couple of percents, you know, Questrade, for instance, charge 2% right on top there. So you're paying not only whatever that conversion is, but also a fee to do it. So to avoid that fee and just pay the equivalent of one trade,

so if you're using a bank, it's $10. If you're using Questrade, it's only going to be $4.95 to sell the ETF, which is really nice. So, okay, I'm getting ahead of myself. What this strategy is called is Norbert's Gambit. And Norbert's Gambit is a really, really awesome method of converting CAD to USD by taking advantage of the fact that some things can be listed on both a Canadian exchange and a US exchange. So back before Horizons came up with an ETF to do this really, really simply with an ETF, you would just pick like a really active stock that's traded both on CAD and trade on like the TSX and the New York Stock Exchange, like TD, for instance,

which has lots of trade volume. So you're not going to be, you know, worrying about too much volatility. You would buy TD on the TSX, journal it over to the New York Stock Exchange, and then sell it on the New York Stock Exchange. And now your money's in USD. So it's the exact same concept, except Horizons came out with an ETF that you can do this and then journal it over to a U.S. exchange, and then you have usd okay so step one you buy the horizons etf ticker d l r like dollar d l r so d l r dot t o because it's on the tsx okay step one buy d l r now you can buy it at at limit order and it'll fill instantly. If you buy it at market, it'll also fill instantly. Again, the spread on bid ask is usually only one penny.

So it's not a big deal if you pay an extra penny and do it at market. I always just limit at the ask price. So I'm going to pay that penny and it's going to fill instantly. Now, you're going to call your broker or chat with your broker, whatever contact method it has, like with quest trade, I just use the email option and they respond that day saying, yeah, the journal has started. So you're going to say, can you please journal my DLR shares to DLR.U. Okay.

DLR shares to DLR.eu. Okay. DLR.eu is the US listed version of DLR. Okay. So this takes a total of four days for the journal to happen. So you're going to buy the stock, the ETF, DLR. the ETF, DLR, you're going to ask your broker to journal it, journal it over to DLR.U. Okay. Four days later, four business days later, check your brokerage to do now is sell DLR.U in US dollars. So I just sell it limit order at the bid price and it'll fill instantly. Again, there's a one penny spread on the bid ask. So now you're going to sell DLR.U and now you have US dollars you can use directly in your brokerage account to buy any US stock. So in the Questrade example, you have now only paid $4.95 because buying ETFs is free and selling ETFs is the normal trade commission of $4.95. ETFs is the normal trade commission of $4.95. So now you have done all of that.

And you've only paid $4.95 instead of 2% on the money. So on 1000 bucks, normally you're paying that the 2% 20 bucks, you know, and that scales, obviously, as you keep going up. So what is the only like, what's, what's the problem with this? There's got to be a catch, right? There's only one sort of mini catch, and I think it's not worth even worrying about whatsoever, is that during that four-day period of it journaling over, it can be favorable or unfavorable between the USD and CAD currency conversion. So this can either make you money or lose you money depending on what happens with the USD and CAD. Now, is there a lot of movements in four days on currency? No.

Is it worth worrying about? No. Can you predict it? No. So what you can do is limit your fees by doing this for $4.95 with Questrade, or it's going to cost you $20 if you're using a bank. So if you're using $1,000 and there's no point of doing this because now you have two trades on a bank. So if you're doing $10,000, for instance, then yeah, you're going to save a ton of money, even if it is two trades with a bank. So if you're doing $10,000, for instance, then yeah, you're going to save a ton of money, even if it is two trades with a bank. So this is a really, really elite way to get US dollars in your brokerage account without paying that percentage fees. And it's more effective, the more you're converting.

Like if you're just converting $1,000, it's like, yeah, whatever. Is it even worth the four business days? Is it worth emailing them? I don't know. That's up to you. But as soon as you're like $10,000, $20,000, you're moving into USD. This is like an amazing, amazing way to convert money. And even if you, you could probably do this in, you know, another account. If you're going on vacation, I don't know if I've seen anyone do that, mostly for their investment account, but you could probably do that. So you're going to the States. I don't know who's going to the States anytime soon, though, Simon,

the border just has been declared closed for another month. Like, is this surprising to you? What's going on? I mean, not really. Have you seen that? Like, I don't want to laugh, but holy shit, huh? Like, how bad is it in terms of cases in the States? It's insane.

Like, it's what, like, Florida just broke a record of like 15 000 daily new cases like that's crazy just florida um i know i mean i'm not looking to go to the state anytime soon and i think 80 they did a poll and apparently about 80 of canadians do not want americans coming over until the situation gets better in the state. So yeah, you could probably. I saw a map that shows which countries are allowing US passports to enter the country. There was only one country in the Middle East. I couldn't zoom in on the map, didn't know which one.

And a small little country in Africa. That was it. That was it. So anyways, I digress. This is the most elite way to get US dollars in your brokerage to buy those US stocks you like. This is what I do in my RRSP because I buy US stocks in my RRSP to avoid withholding tax. This is a really good way to do it. When you are ready to do it, you want to do it. The link is in the show notes or you go stratosphereinvesting.com and it's on there. It's on the blog page. But Simon, link this in the show notes and people will be able to follow the guide. I've laid it out really, really simply for everyone.

Yeah, definitely. And I mean, I know for Questrade too, because before you told me about that, I converted a few times Canadian to US. And it takes them a few days to do it the normal way anyways. So it's not like the four days is actually an actual like four days time if you compare it to the usual process. I think it takes them a couple of business days anyway. Yeah. And that's a good, that's a good point. But also I would say it was like hardly not even worth it before I realized that you can just send them an email with the request because calling them is such a pain. You're on hold for a while. So, I mean, that's what you get when you're paying for, you know, the lowest fees possible.

Chances are you're going to get the lowest support possible. So the email option is really fast. Day of, you're going to get that journal entry going. So definitely better than calling them. And on my guide there, the email address to send that to Questrade is listed as well. So, Simon, you're going to give the lowdown on options. Option contracts have been more popular than ever. I think there's been more trading than ever.

So you'd got to see, you would have to think that all this speculation in the market has some correlation with all the option contracts flying around. Yeah. And just before I get started, just kind of a little caution here. This is just an overview of option of stock options. There's different kind of option contracts. You can get like very complex options contract. The stock options, there's really two main stock types of stock options, but you can get options on bonds. You can get options on commodities.

But really, we're going to be talking about stocks. So keep that in mind. And if it's something you're interested, like read more about it. I know, you know, what's the books for dummies, I think they have a pretty good starting point in terms of just understanding stock options and the various strategies. So that could be a good start. But there's all sorts of books out there. Just make sure if that's something you're interested in, you read more. Really, my main goal is just so you guys, everyone that might not be familiar with options, if you happen to, you know, watch CNBC or you hear that word, you'll actually have a better understanding of what it is. So yeah, before we get started, as an extra sign of caution, I think I told you, Brayden, about the guy that took away his own life in the US. It was, I think, Robin Hood. So he was trading options and he didn't really understand what he was doing, but also how the app actually worked. And he thought he had a loss when he didn't and eventually really felt overwhelmed.

And in his letter that he provided to his family, he was basically pointing that that was the cause. So obviously, it's a sad thing to see. I just want to create a bit more awareness of what stock options are. Yeah, dude, that story, the young kid trading options on his RobinHow to count, like literally broke my heart. And you're seeing a lot of people just kind of throw money around. lot of people just kind of throw money around uh and option seems to be a really popular way of day trading because of the kind of outsized potential um if you execute these option trades correctly and simon can go into detail about them but yeah i mean there definitely needs to be more education out there on these types of financial instruments.

And that's why, you know, after you go on this, I'll just say my take, you know, investing is simply just owning long positions and not worrying about it too much and just not worrying too much about the noise and all these other instruments. You can short stocks. When people say they're going long on something, they just mean they're holding the stock and they're buying and holding for a long period of time. And that has proved to be the most profitable long term. So yeah, anyways, go ahead.

Yeah, totally agree. And you don't need to be purchasing or getting into options. So buying and holding is a perfectly fine strategy. 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 questtrade.com. Calling all DIY do-it-yourself investors, Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track

your dividends. And there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, blossom social in the App Store and I'll see you there. So, okay, let's start with the basics.

So what are stock options? So a stock option is a contract that gives you the ability to buy or sell shares of a company at a predetermined price. One option and one contract option that's really important to understand is equal 100 shares. So if I have one option to buy Amazon shares, for example, it'll give me the right to buy 100 Amazon shares. So just keep that in mind. Obviously, you know, if you're looking at the price of Amazon shares, that would be quite pricey. But just keep that in mind. One option contract is equal 100 shares. Options have a specific time frame and end date. So there's a contract, whether it's six months, a year, three months, there is an end date for that. And options can gain in value, but can also become

completely worthless. So there's really two main types of stock option. You have call options and put options. So we'll start off with call options. So if you buy a call option, it's a contract that gives you the right to buy stocks at a predetermined price for a set amount of time. Generally, you'll want to do this if you're bullish on a certain company. So for that right, the buyer of the call option gives the seller a premium. So I'll give you guys an example just to wrap your head around it. And although the name of the company you'll be very familiar with, the actual share price, I just kind of kept it easy. So it's not reflective of what the share price is right now.

So the example is that Braden owns 100 shares of BAM. Yes, we just talked about BAM Brookfield Asset Management, which is currently trading at $10 per share. So I decide to buy an option contract from Braden that gives me the right to buy BAM shares at $11 of shares for six months. So that $11 a share is also known as the strike price. So if you hear or you read about option, you'll hear that quite a bit. So the contract's valid for six months. In exchange for that right, I actually pay Braden a premium of 50 cents a share. $50 in total because it gives me the right to a hundred shares and that's a premium price that Braden gets in exchange to give me that right so there's really three main outcomes that

you'll get when you you do a call option the first one is I decide to sell the option contract. So for example, say in that same scenario, the shares go to $15 a share within two months. For whatever reason, I'm no longer interested in owning BAM. So I decide to sell the option contract to someone else. Because the option contract gives the option to buy shares at $11, I'll be selling the contract around probably $4 a share. So the difference between $11 and $15. It might not be exactly that because you get value in the four months remaining on the option contract. So there is a price to pay for that time aspect of it. It's really dependent, like that's really important in terms of the time remaining whenever you look at stock options. So the last

thing you'll need to know in that scenario is the volatility of a stock will play a big role in the value of those contracts as well. So first thing that can happen, I don't exercise the contract, but the option is worth more than I got it, so I sell it for a profit. Second possible outcome is I exercise the option contract because I want to own 100 shares of BAMS and the stock price has actually gone up. Again, it's $15 a share after two months. I decide, you know what, I'm all good with buying a hundred shares of BAM at $11 I'm exercising that the last outcome is the option is either worthless or worth very little so this would happen if the contract is coming up so really close to the six month period and the stock price

is lower than the strike price, which is $11. So the option will never, it'll never be totally worthless unless you come to the expiry date and it's lower than the strike price. If the option is not exercised, then it's pretty simple. Braden keeps his shares of BAM and collects the premium. So that $50 premium that I gave him at the beginning. So in this example, it would mean that the price of BAM is actually lower than $11 at the end of the contract of the option. So it's, I mean, why would you want to buy or sell an option, a call option? I mean, if you want to buy, it's usually because you're bullish on the company. So in that scenario, I'm bullish on BAM. So I'm like, you know what? I think it'll

go at more than $11 a share. So I'm going to buy that option contract for whatever reason. I don't want to hold the shares. There could be various reasons for that. One of the downsides for me is I cannot collect the dividend because I'm not owning the shares. Why would Braden want to do that contract? Well, he collects that premium. So in the last scenario I just gave, I mean, Braden's a pretty, you know, he's a winner in that outcome because he's keeping his shares and he's collecting that premium. But, you know, it could also be that Braden, you know what, he likes BAM, but he's not, he's thinking about selling. So he's likeen you know what he likes BAM but he's not he's thinking about selling so he's like you know what I'm gonna sell that option that call option worst case I sell my shares I collect the premium best case I keep my shares and I still collect the premium so you have that give you a good overview

Braden of what call options are? It does. It's just that my mouth keeps watering when I hear BAM for $10. Exactly. When I hear BAM for $10, I'm like, oh, baby. Yeah, maybe they'll split. Sounds pretty good. They'll do a stock split soon, and it'll go down to $10. Knowing them, they'll do some insane stock split and split the whole company up again.

Yeah, exactly. So that's the basic of a call option. So it's not, it's not overly complicated, but then you can combine, you can have, you know, you can combine options, different types of options with other ones. It gets really complicated and you can have multi-leg options and I'm not well versed in those I know what options the basic ones are by all means if you're look you're interested in doing that you know do some more research as a side note I've done some research in terms if they're allowed in registered accounts so RSPs TFSAs locked in RSPs I couldn't't really, I found some information

saying that you know it seems like the CRA will allow it but only really the basic types and it sounds like it really depends on your brokerage whether they'll allow it or not but anyways if you're going to own stock options in a registered account, I would recommend that you contact the Canada Revenue Agency just to make sure that it is allowed in that registered account. So the second type of option, it's called put options. So put is really the opposite of a call option. So it gives the owner or the buyer of the put the right to sell shares at a predetermined price. So really, it helps protect against the downside. You can almost see it as like insurance, if you like. So in the same, in the similar example as earlier, so again,

Braden owns 100 shares of BAM, which are currently trading at $10 a share. However, Braden is scared that BAM may go down and wants to protect his downside. So I agree to sell him a put option at a strike price of $9 per share. In exchange for the right to sell his shares at that $9 price, Braden gives me a premium of $0.50 a share or $50 in total, because again, we're still dealing in a hundred share for one contract. The contract is valid for six months. So we got three possible outcomes. First one, Braden sells the contract. So let's say the shares of BAM go down to $6 share within two months but Braden for whatever reason he's like you know what I I had a lapse in judgment and I want to keep my

BAM shares so he can sell his contract probably profiting about $300 so it's basically the difference between the $6 and the $9 strike price to someone who would be interested in buying his put option. The put gain in value when the share price goes down as it gives the owner the right to sell at a predetermined price strike price of $9. So it's the opposite of the the call option like we we talked earlier. Second option a second outcome is Braden exercises the contract. So same situation, but Braden decides to sell his shares at a strike price of $9 per share when the shares, because the shares are now down to $6. So I have to purchase the shares at $9 a share,

even if they're currently selling on the open market for $6 a share, because that's my obligation. The last outcome is the put becomes worthless. So BAM goes up to $15 and we're really close to the end of the contract. So this means that the right to sell, Braden has the right to sell his share as $9, but it's worthless because he could sell them on the open market for $15. So that's when it becomes worthless. As a side note, as long as there's still a little bit of time remaining, you can always recoup. It might be pennies on the dollars, but there's always a chance that you could recoup a little bit of the option in terms of price because as long as there's a little bit

of time remaining there's always the possibility although maybe very remote that the option becomes profitable by the end of the contract date so this you know this outcome for puts it's this it's good for me because I collect the premium. If I like the company, then selling a put option to Braden is good for me because I'm selling that when the company is actually trading higher than $9. So the way I see it is like, okay, if it goes down, I mean, I'm still collecting that $50 premium

and I get to buy the shares at $9 a share, but they're currently trading at $10 so you still have that upside from my end. For Braden obviously the main thing for him is he really protects his downside but obviously it costs him something to do so. So that's a premium he pays. So really as simple as I could keep it that's in a nutshell how call and put option work for stocks. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense,

and with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Calling all DIY do-it-yourself investors, Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement

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

know, I bet you they're already on there. People are just on there talking, sharing their investment ideas, and using the analytics tools. So go ahead, blossom social in the App Store, and I'll see you there. That's a great summary, man. There's so much to unpack when you're understanding the ins and outs

of both sides of the contract. And then again, with both puts and calls, using insurance on puts is definitely the easiest way to understand it just like you have car car insurance or home insurance it's a very very similar concept what i will say is options are based on the speculation of price movement. It is entirely to do with share price. And as long-term investors like ourselves, I don't put on price targets. I don't listen to price targets.

I'm more focused on how that company is executing and what are their prospects to be holding this long term, aka going long. And none of that involves speculating on what the price is, is going to be in a short term frame. short term frame. And no one ever in the world has consistently determined what prices are going to be on the short term. So on the long term, you know, you have so many good businesses out there. And if you decide options are not for me, good, you just you just that's it, you don't have to own options. So I feel like when new investors

come out, they know that there's so many instruments out there that they don't know about or they feel like they're missing out on something or they feel like they need to learn about some complex financial instrument to be able to succeed in the markets. And that just couldn't be further from the truth. So if you're listening to this and go, I am good with my portfolio, I'm going to continue to add to long term compounders. Like give me a props right now, because that is fully what Simon and I think you should be doing. But that was a really good summary of it, Simon. So Simon, let's talk about what you did recently and what we have been texting about back and forth. And you know my stance on this, but I understand why you did it and it is probably not a bad idea so this is the concept of

selling stocks that have really really taken off potentially gone to valuations you would never buy them at you know the market, really likes this particular sector. So you think that there might be some inherent overvaluedness from that. And that's definitely fits the bill for this company. So, Simon, walk us through which company it is and what you did recently. Yeah. So the company, you guys will be surprised, but it's Teladoc. So Teladoc has been on a tear since the beginning of the year and the pandemic. I think they're about up 300% just for the year or 250 now. So my cost, I mean, I think it's,

if I were top of my head, it's about a seven bagger for me based on my costs of Teladoc. a seven bagger for me based on my costs of Teladoc. So I was looking at it recently last week and Teladoc is selling at 25 times sales. So the valuation is really rich. They're very close to being profitable. So that's a good thing. I still love the company, but with the pandemic and all the speculation that's going on, I think, in certain types of stocks in the market. For example, I think we've talked about Tesla before. But Teladoc, I mean, I still love the company long term, but I'm looking at this and I was looking at my portfolio and specifically, it wasn't the biggest portion of my overall portfolio.

So if I include my pension, if I include my RSPs, if I include my TFSA, all of it all together was about around 15%. But the problem is it was more than half of my TFSA. And I was thinking about it and it was starting to make me a bit nervous. And I think that's probably the best test for you. If you're wondering if you should sell a company or not, if you're thinking about it a lot, it's making you nervous, that's probably a sign that you should at least sell a portion of your holding. So what I did for Teladoc, I still love the company, is I decided to know I don't have to sell the whole thing.

So I only sold 10% of my shares in Teladoc. sell the whole thing. So I only sold 10% of my shares in Teladoc. I kept the rest and that helped me, you know, realize some gains on Teladoc, some really good gains. I still have exposure to the company, actually still pretty significant exposure to the company. But it still helps me, you know, it helps me to sleep at night a bit better. So I think that, to me, applies a lot more for growth stocks. If you have really blue chips, dividend-paying companies, that's probably not as much of a concern. But if you have a stock like Teladoc that is just trading as insane valuation, and I'm saying that as a shareholder, it's up to you whether you think you should be doing that, but it's not like you have to do it all or nothing

where you have to completely liquidate your position. You can sell a small portion and still keep a big, really substantial stake in that holding. So that's the reasoning I kind of use when I sold those shares. I like that you brought up the actual feeling you had. It was making you nervous. And if that's the case, if there's, and this goes not for companies that have done really well,

this probably goes more for companies that have done horrible and you're looking to get rid of. If it's not, if it's help affecting how you're sleeping at night or you keep thinking about it and you just don't feel comfortable owning that shit co, then just get rid of it. Like simply. As for this situation, I am, you know, a big believer of water the flowers and cut the weeds don't sell big winners unless the stock goes like completely parabolic and uh it's it's mania like yesterday 40 000 people

uh trading on robinhood tesla in in one hour at its peak, breaking every single record and just kind of spells all the makings of a bubble. Sure. But at 25 times sales, it does seem crazy expensive. But when you look at their income statement, you know, you're making some pretty bold assumptions of that growth rate continues. But in five years, the stock all of a sudden looks cheap on a forward basis. Again, that's built on a massive assumption that growth rate continues but in five years the stock all of a sudden looks cheap on a forward basis again that's built on a massive assumption that growth continues uh on that like ridiculous 60 80 percent year-over-year revenue growth which obviously won't consist for a super long period of time law of large numbers but it could continue for up to five, five years, who knows. And this company

is obviously executing very well. So Simon, you, you barely touch your position 10%. You're still buying into that letting this thing run. It's obviously has lots of things going for it. What definitely crossed your mind, and I tend to agree with with you is because we're in a pandemic, because it's a technology stock, it's being pushed and tested at insane highs and really high, like 25 times sales is really expensive because it's in the right place of the things that the market likes right now, which makes me nervous because you're kind of overpaying or there's inherent valuation, multiple expansion, because it's a sexy name in a pandemic. So that definitely crossed your mind. But what I will say is the hundred-bagger scenario creates really, really impressive wealth in a stock portfolio and will carry a portfolio to whatever target goal you're looking for it to do.

exposure is, is Teladoc too big of an exposure that if something happens, or, you know, this multiple contracts by half, is it going to affect my life in a major way? So so that's those are questions for you managing your own portfolio. But what I will say is that in that 100 bagger scenario is there would be so many times that if you were an early investor in some of these like mega trillion market cap companies like Microsoft, Apple, Amazon, there would be times that even if you owned a few shares, it would become such a sizable position in your portfolio that you would immediately feel like, oh my God, this thing's taking on my whole portfolio. Should I sell it? And that's why that whole, like, if I only had a hundred shares of Amazon and IPO, blah,

blah, blah, blah. And the reason that you don't really know anyone that has ever pulled that off or any mutual fund manager that's pulled that off is because those investment professionals have to trim positions if it gets more than say 10% of the portfolio. So that's why that never happens that, you know, those few shares became, you know, hundreds of millions or tens of millions of dollars. Those stories don't happen because of that portfolio rules that are kind of set. So if you are a DIY, managing your own portfolio, picking companies you like,

a little bit of index funds, whatever you decide to do, and you have something that absolutely takes off, there is no one or no piece of governance telling you that you need to trim it, you need to sell it, it's too much of the portfolio. And you just don't have to. So with the caveat of, yeah, if it's if it's affecting your life, or making you really nervous, then it's not worth it. But if it's not, and you still have extreme prospects for the company, I mean, if you were an early investor in Microsoft, Amazon, and Apple, you would have seen, especially in the technology bubble of early 2000s, late 90s, in 99, you would have seen multiples on Microsoft and Amazon at just outrageous levels. And that's why you saw from like 2002, when it popped to 2016 of October of 2016, Microsoft did not have a positive return.

So these things do matter. These like hyperbolic bubble type valuations do matter. But that whole time you witnessed Microsoft and Amazon changing our world. You witnessed that whole time, it changing the way we do business and the way we buy things right in front of your eyes. So if you don't have those rules telling you to sell it, you know, maybe Teladoc is the future of medicine, right? Like I believe it is. I think there's a lot of competition, so I don't know who's going to be the winner, but telemedicine is definitely a top of a large secular trend. What's the best name in the space? Probably Teladoc, right? So these are the kinds of things you have to think about. That 100-bagger scenario creates super real wealth. Water the flowers, cut the weeds.

Simon, I'm happy that you only cut 10%. Yeah. Oh, yeah, exactly. And the example I wanted to give to is you don't need to – it's not a null or nothing. And what Braden said for sure, have to you know we can't tell you what to do only you know in the end so you have to really examine yourself whether you know a certain company whether it's right for you whether you want to sell it keep it sell a portion of it that's really up to you but i have sold full positions before and brookfield property

partner is a good example i did not dollar cost sell at all. I just sold the whole thing at once because I just didn't really believe in the overall company going forward. And there's also nothing preventing me if say Teladoc comes back to earth a year or two from now and I find that it's trading at a reasonable valuation, maybe I'll add more shares but I'm happy

that I still have a very pretty big position in Telda I captured a bit of those gains and yeah maybe in the long run it'll be worth a thousand dollars a share but I'm happy with the choice I made and you know you'll never you'll never time the peak and you'll never time the bottom so as long as you're happy and comfortable with that and you know that. And you know, you'll never, you'll never time the peak and you'll never time the bottom. So as long as you're happy and comfortable with that, and you know that I think, you know, you'll be satisfied with your decisions. I was writing about how Shopify on my blog was trading at forward sales numbers that are just really, really high. I wasn't going out and saying the stock was stupid price or stupid overvalued. I was just saying that you are paying way, way up, which is not a new opinion at all. You know, forward 60 times sales is just nuts, right?

my friend Allie, she bought one share in the low hundreds of Shopify. And she just had the one share. And she kept asking me like, keeps going up, like, should I sell it? Should I sell it? I just kept saying, no, let it ride. The company is doing extremely well and is making a noticeable change in the industry. And it's becoming a household name. Don't sell the stock as crazy as the valuation might look. You only own one share. So what are you going to do? Completely exit the position? So whether that's your scenario or it's 10 shares, whatever the scenario may be, if it is making a noticeable impact and becoming that household name, like you watched Netflix from its IPO, just go to hyper, hyper high valuation multiples, look super, super valued, overvalued on pretty much every metric and still will today. You watched it change an entire industry over a couple of years, less than a decade. So if that's the scenario, don't sell your winners. All right, guys, I think that does it for this week. We will see you next week. Getstockmarket.com, of course, to go get a list of high quality compounders that I'm looking at in my portfolio all the time. Final call for beta

testers, Stratosphere 2.0. I'm building a new web app that's going to be really really great uh braden bradn at stratosphereinvesting.com send me an email this is my last call uh i'm going to close it very soon timing looks like september we will see you guys next week thank you so much for listening 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 thanks for listening to this episode of the canadian investor to get a list of the Canadian Investor. To get a list of the top Canadian dividend stocks right now and other valuable investing resources, go to GetStockMarket.com.