The Canadian Investor - Episode 22- Should you try to time the stock market?

Episode Date: April 12, 2020

In this episode we talk about market timing and if it’s something you should try to do when buying or selling stocks. We then move on to a listener question about 3 canadian companies and finish the episode with our Tip of the D’eh!Tickers of stocks mentioned : BBD-B.TO, MTY.TO, LNR.TO, MG.TO--- 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, everybody. I'm joined by my co-host, Brayden Dennis.

My name is Simon Belanger. We're back with another episode. Really excited to be back. It's Saturday. We're going to get two out this week like we had mentioned. And we'll talk a bit more about the markets. Then we'll talk about three companies that were requested by Matt Sear. I don't have his last name, but most likely a francophone because that's the French spelling.

Brayden, how's it going? Saturday, long weekend for Easter. Yeah, Saturday, long weekend. Happy Easter for those who celebrate. I got my coffee and lots of Baileys in here this morning just because, you know, it's a long weekend and it's Saturday, so why not here? So yeah, I should be fired up for this episode given that. And yeah, so looking back, short week,

Monday through Thursday, the stock market from last Friday's close is up around 12%. So you're seeing this rally and it's got all kinds of people confused, a little bit of FOMO, trying to jump in and hoping that they caught some sort of bottom. Guys, I will repeat this many, many times this episode. Timing the bottom is literally impossible, requires pure luck. So what you do is you just continue to buy while the stock market is going down. And even right now, do not feel like you've missed some sort of bottom. The coronavirus cases are only going up. The peak is supposed to be later in April. So we are not out of the woods yet. So don't get this false notion that because markets move really fast, that you've

somehow missed something or created this FOMO. Guys, seriously, rational thinkers here will continue to buy during the bottom. And yes, you should be buying because the stock market doesn't wait for anyone. It'll recover eventually once this all settles down and we go back to life normal as we know it, whatever normal looks like. And you'll wish you had been aggressively buying stocks right now. So don't try to time the bottom. That is going to be my rant for this whole episode, I think, Simon. I mean, it's a valid rant.

And yeah, I completely agree with that. You should not try to time the bottom, especially this week. I mean, a lot of the market gains were just based on somewhat good news. The reality is no one really knows when things are going to get back to normal. The more I read about it, I've listened a bit on Bill Gates, which he seems to know quite a bit about it, too. And it sounds like we won't get fully back to normal until there is a vaccine in place. There is my obviously I think there's going to be a gradual kind of, you know, things opening back up again.

But probably what's going to happen, people are going to have to go out with masks on the extra precaution in place i don't think the social distancing or physical distancing is going away anytime soon at least just you know it'll stay in place to some extent um so i think there's still a lot of uncertainty this week i think a lot of the market gains were due because of that some slightly better news coming out people saying that the numbers of total infections and deaths might not be as high as originally projected but again that changes on a week-to-week basis um so i'd be cautious about that the other thing that led the market specifically in the states but obviously worldwide because usually they they have a big impact on those is bernie sanders dropping out in the states but obviously worldwide because usually they they have a big impact on those is

bernie sanders dropping out in the states of the presidential race so that had been weighing on the markets a little bit because of what people perceive as a more socialist agenda a lot of people were fearing insurance companies in the states that would have a hard time if saunders would be elected president so now that he's no longer there, there's less pressure from that perspective. So I think we're going to see a lot more market volatility in the next weeks, months, probably for the rest of the year, to be honest. So like Braden said, don't try to time the market. You're best off having a plan in place or a regular schedule.

That is a very good point there are lots of things kind of going into the mix and why this rally this last week happened most of it being riding off the coattails of proof that what we are doing as a society by distancing ourselves physically is working and it should be working's definitely, it should be slowing down the infection. Here I am. I'm like a castaway here. Tom Hanks haven't left my house in what feels like, I think it's going into week five. Who knows at this point. So let's transition. Matthew provided a question on getstockmarket.com. Thank you very much for the questions about specific stocks. It's fun for us to talk about them.

So the three he listed were Bombardier, MTY Food Group, and the last one was Linamar Corporation. So I'm going to let Simon dish out his thoughts on Bombardier because this one is fun to talk about and kind of fun to roast. I'll give my quick take. I'm not going to talk about any fundamentals or anything other than this one makes me a little bit sad as a Canadian engineer. The innovation story from Bombardier was so awesome in terms of planes and trains and, you know,

the recreation, all the sea dues, the jet skis, the snowmobiles. It was such a great Canadian story that has just been mismanaged and just failed to hit the mark for what feels like my entire lifetime now. So I'll leton talk about some of the actual fundamentals with bombardier and say it correctly would be a good start too yeah exactly like uh like matthew's name uh yeah i'm sure he'd be fine if you call him matt um i know i have a buddy and who's a french name obviously french matthew um and I call him Matt all the time. But I digress. So it's Bombardier. That's how we pronounce it in French. So Bombardier started a long time ago. I don't. Obviously, I started way before I was born.

But like Braden said, it's not been a good couple of decades, if not more, for Bombardier. It's not been a good couple of decades, if not more, for Bombardier. There's not much left of their business. So they've actually sold off the recreational aspects of recreational vehicles, sea dues, snowmobiles, all that. So that was spun off several years ago, sold off. They also recently got into an agreement to sell their C-Series to Airbus. So whatever they had left in terms of stake, I think it was around 35%. So they're out of the commercial aircraft business,

they're out of the recreational vehicle business. And now just recently, I think about last month, if I remember correctly, they sold the rest of their train division to Alstom. So the European company, for $8. something billion, I know they're going to use part of that to pay off their debt. So what this all means is that Bombazzi only has one line of business left, and that's private jets. Problem with private jets, it can be very cyclical based on how the economy is doing. It caters, obviously, to rich people or corporation.

And in this type of climate especially. I think corporations and individuals that can afford this. Even based on perception. You'll probably see orders go down for private jets. That would be my predictions. Without being very knowledgeable in that industry. you know, orders go down for private jets, that would be my projections without being, you know, very knowledgeable in that industry. But it's probably a nice to have for them, not a must. And when their businesses are struggling, they're not going to be spending on that. So that's going to affect their sales as well. If I look at their balance sheets, I mean,

it's not looking good. So the most recent one didn't include the recent sale of assets. So it's a bit harder to make sense of it. But they have a lot of liabilities on the balance sheet. And I honestly don't know with their revenue being much lower now because they have a lot less in terms of lines of business. I really don't know how they're going to survive. I think they're worth a bit more than a billion dollars in terms of market cap now. They've fallen from grace. They've been a darling in Quebec for a lot of years, and it's sad to see it, but I've not heard anything from the federal or provincial government

in terms of bailout for Bonbarzi and with them having sold most of their businesses away I think we're probably seeing the end of the line for for them a quick anecdote too is I'm sure everyone remembers Sears so all the stores are closed in Canada but they're still open and some well they're closed right now but they're they were still open and some, well, they're closed right now, but they were still open until COVID-19 came into effect and all the restrictions. Not all of them, but some stores in the States. But what happened with Sears is a similar story. So they were a bit of a leader when it came to, well, maybe not leader, but they were well positioned 15, 20 years ago. And as things started to slow down, they didn't invest in the business, they did not invest in their online presence. And then they had a lot of debt, they needed to, you know, make save money pay off debt, because they didn't take the precautions when it was time 15, 20 years ago, they didn't make the proper investments. So they had to sell some valuable assets, and it really started a downward spiral

for them. So they sold a bunch of their brands, I think Kenmore, they sold that off, they sold a bunch of their tool brands. So at the end, I mean, it's nice, you get money in, but then your revenue actually go down business with a 10-foot pole. I know it's not expensive, but it can always go lower. It's a penny stock, but it's still worth over a billion dollars. So in my mind, it can still go lower. 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 gonna 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. It is a sad story, Bombardier. And they basically have spun off all of their good segments, spun off or sold all of their good cash flow generating assets. And they are officially stuck with nothing. It's just it's too bad. The one spin off the Bombardier recreational BRP, the manufacturer of Sea-Doo,

and so that is tickered D-O-O, Doo, that's been an incredible performer and is down 70% from this market correction. Couldn't tell you why. But if you were looking for something in the bombardier origins uh the sidu holding company that was spun off by bombardier is publicly listed undertaker doo and has been a very good performer so uh might be something more worth looking at right now in terms of something that is not uh completely dying and you're catching a failing business. All right, let's move on to two more. The first one I'm going to talk about is Linamar

Corporation. As a graduate from the University of Guelph, Linamar is an important business in the Guelph, Ontario area because they have over 30 manufacturing plants and they're all in Guelph. So it employs a large population. And this is automotive manufacturing parts. Their biggest competitor in Canada is Magna, Magna International, a company that keeps coming up on this podcast for some reason and they uh they make auto parts in uh in the capacity of a tier one supplier so essentially they ship parts to the oem and get fed tier three and tier two auto parts suppliers so very similar to magna except magna is way way bigger it operates all around the world and pretty much every continent, whereas Linamar you're looking at inside Guelph. The only real differences between them, Linamar primarily focuses on powertrains, how the actual car drives, primarily.

I mean, they have lots of different segments, but they also have some other cool assets that they manufacture. The Skylifter, what's it called? Anyways, in construction, they have another pretty cool business that's done very, very well for them. So this business, I look at it and I go, okay, I buy this or Magna. And Magna has way more capability in engineering we've talked about before. I think they will be a key partner in the driverless car transition. And they just have way more capabilities than Linamar, to be quite frank. Let's talk about the valuation.

This company, Linamar, is trading at five times earnings. Incredibly cheap for a company that's been growing at like 16% a year. However, 2018, 2019, we have seen a somewhat looks like a peak of a cyclical industry, which is auto sales. So it's hard to expect that growth will continue. And let's not kid ourselves. I've talked about the auto supply chain being incredibly complicated. I think the most complicated supply chain on the entire planet. And a lot of the world is just not manufacturing right now if it's not essential services.

So a lot of them have transitioned to making things like ventilators. But their priority right now is to make cars, but they can't. So it's very, very difficult. Beyond that, I think it's incredibly cheap. The growth story has been good. I think the growth won't continue the way it has because they are tied to auto sales. I think I like Magna a little bit more. I mean, Magna is a lot bigger, has the engineering capabilities and manufacturers to all the OEMs across the entire world, Europe, Asia, North America. Whereas Linamar, you're looking at, you know, Canadian pure play manufacturing auto sales all right mty food group another stock that has completely been battered by coronavirus they have primarily all of their food like uh food stores in food courts and the office crowd That is their bread and butter in terms of fast casual food,

along with the restaurants that they have. So you're looking at the office crowd and shopping malls. Those two things not open right now. Those two things, low, low traffic. So that's why the stock is getting absolutely crushed. They're an acquirer of distressed food, fast pickup assets, and they have done really, really well. The dividend growth has been insane. The top line growth, you're looking at north of 25% a year, free cash flow at over 20% a year. A company like this this very similar in size to recipe foods um the owner of like milestones and uh i think montana's grill the former cara foods there that would be a similar comparison however mty all of their acquisitions in the last five years have primarily been in the u.s and they've been a really really good acquirirer. The stock is incredibly cheap. And

I mean, fast casual foods not going anywhere. But the foot traffic right now is a concern. MTY has already said that their franchisors are not having to pay the full extent of the fees during this time to give them some breaks. I think that if you are a long-term dividend growth investor, MTY is definitely one you should probably put on your list. Meets all my screens. Fairly well-run company. Also another Quebec story. I mean, yeah, if you're a contrarian investor, fast casual food, this one, MTY, recipe brands, even QSR, like Restaurant Brand International, definitely something you might want to put on your watch list. And if we're talking about beating up stocks, I'd rather pick up something

like this that's heavily discounted than a falling, failing business like Bombardier. Yeah, that's a great overview. I was going to mention when you were talking, again, we've mentioned that in previous episodes, but be careful at looking at valuation metrics, especially like P ratios and things like that. Most of the metrics you'll see will be, you know, the past 12 months, so trail and trail 12 months earnings. So that's going to change quite a bit. And any estimates going forward, I'd be very careful about those because like no one really knows that's the reality of it. So you're going to have to, you know, probably make some assumptions of your own when you want to invest have to, you know, probably make some assumptions of your own

when you want to invest in these type of businesses, whether it's LNR or MTY Food Group, or QSR or any of the businesses that Braden mentioned, it's gonna be rocky for the next little bit. And it's going to be hard to predict, at least for the short term, where these businesses are going to end up. So I think it goes back to what we've said before, you want to focus on businesses that have solid balance sheets that will be able to weather the storm if their revenues go way down and to make sure that their debt is not too high and they can actually survive. Yeah, that's a good point. Using trailing or forward-looking valuation metrics like the P, like the price of sales,

it's really, really useless if the business is heavily impacted. So you're correct. I'm just trying to give you a sense of how cheap they really are in terms of their growth in the past right now. But again, very good point. Air Canada trading at two and a half times earnings does not tell you a very good story about if the company is cheap or not when we're talking about potential bailouts happening, which I think we can all agree on a company named air canada has the uh has the uh backstop of of the bank of canada there's no doubt about it bombardier i think

they've kind of uh they've lost that opportunity have they been bailed out before bombardier do you know yeah i'm pretty sure they have at least subsidized. I know they've been heavily subsidized in the past to keep jobs in Canada. I don't know if they've been bailed out per se. I don't want to give any false information, but I'm very certain that they've been subsidized. I'm not sure if it was the federal, provincial, or both, but I know that's happened in the past. Fair enough, yeah. provincial or both um but i know that's happened in the past yeah fair enough yeah so of those companies we just talked about there are lots of companies that are on the operating table in terms of having issues and heavily discounted because of those issues and this is something i actually

wanted to talk about that i was texting Simon with earlier is I hate, absolutely hate the notion of the cliche risk reward scenario where the notion that if you take on more risk, you are automatically rewarded. That could not be farther from the truth for long-term patient investors that get rewarded very handsomely for not taking on excessive risk with these companies that are on the operating table for the first time i'm looking at this and in a very unprecedented situation being in a pandemic I'm looking at this and for the first time it feels to me like risk and reward are actually weighted correctly. And the upside and downsides being very big on some of these companies, depending on how it plays out, the risk reward actually feels balanced. And I am so against that cliche, take on more risk, get more reward.

It's complete BS. And I could go into the reasons of why that is. Basically, if you lose 100%, you have to regain 300% because of that math. I've written many, many articles on investing losses math and how it actually really kills long-term returns. But here it feels about right. What's your take on that, Simon? Yeah, I mean, I would always be careful. Same for me in terms of like risk reward when people say, oh, you can't get like high rewards if you don't take a lot of risk. I mean, I guess you can make there is some merit to that if you look at all the billionaires or most of them. Most of them are like super concentrated.

Oftentimes, like it's in one business you take like Jeff Bezos, like most of his wealth is around Amazon. business you take like Jeff Bezos like most of his wealth is around Amazon but then again you can still become you know very wealthy over time if you have an approach of just selecting solid businesses that you want to keep for the long term that have solid fundamentals versus investing in stuff that's like yeah it's you might get a really high reward, but to me it comes down a bit more to expected value, and that's a concept where I learned in poker. So not to go into too much detail about it, but you want to basically, your expected value is always dependent on,

you know, what you think your potential gains can be and how often that will happen, and then how often you're going to lose money or lose all the money or the percentage that you lose. So you have to make that calculation. It's more of a NARD than a science because you'll have to make a lot of assumptions yourself. But that's how I tend to look at it. It's a bit more of a kind of a math, subjective calculation to do. But I look at it a bit more in terms of expected value. So, you know, your expected value can be way higher for a stock like Microsoft, for example, compared to a penny stock like Bombardier. Yes, Bombardier, if it just goes to $2 a share, you'll like quadruple your money. But how often will that happen? Maybe what 1% of the time? Like, I don't know. But that's how I kind

of think about it. I know it's more of a mathematical concept a little bit. But I've kind of, I know, I don't know if Braden, you're familiar with that. I assume that you are, but that's the way I look at it in terms of risk reward. 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. That's a good point. And I like the correlation from the poker game. Yeah, you bring up a good point. I mean, if Bombardier goes to two, you make some sweet return and you go, wow, that was awesome. But if that happens, I don't think

it's due to real business results. And that's where this gets really, really interesting. And you get these stock market bros that are looking to make sweet returns over a very, very short period of time. And they think there's some sort of financial genius when it happens. But the reality is, is that the stock market moves much quicker than real business results. So if Bombardier goes $2 tomorrow, it's not because, oh, all the businesses they just gave away for a bag of hockey pucks is worth so much money all of a sudden. That's not the real, real scenario.

All right, should I go to my tip of the day here? Yeah, go for it. You had a good one, so go for it. All right, should I go to my tip of the day here? Yeah, go for it. You had a good one. All right. All right. My tip of the day, and this comes from a message I got on my business Instagram. Follow me, quick plug, at stratosphereinvesting on Instagram. I've been getting a lot of, hey, Braden, when is the bottom? I'm not kidding. That question comes up more than you would think. And the problem with that question is where there's a lot of problems with that question to begin with. But the notion that if you are some stock market or very experienced stock market investor or even expert, that you should know when the bottom is is completely bonkers makes no sense and my recommendation for you is if you find people

that tell you they have some hot tip on some date that the bottom is or weak or even a prediction of any kind is completely silly because they do not know and an actual experienced stock market investor like simon and i myself will say the only correct answer to the question which is i don know. That is the only correct answer. And sure, it might be fun to throw out some predictions and go, yes, the week of April 18th. But I'm just guessing. I don't know. Maybe I had another three of these Baileys and coffees this morning. And all of a sudden, I'm boldly predicting when it's going to be. It's completely ridiculous. And start taking more value in the people that say they don't know. Because those are the people that have real experience and are telling you the truth.

The idea that someone's whispering to you that it's going to be on a specific day or they know something about the coronavirus that you don't, it's just complete BS. And I would say, let's start valuing the self-awareness trait of, I don't know, because that's all you can really do. And it will make you a better investor if you can say to yourself, I don't know, and I'm just going to continue to invest on, you know, some regular schedule. We talked about this all the time. That strategy is called dollar cost averaging. So let's take value in the in the saying, I don't know, and not beat up people for saying they don't know. Because those are the people who are actually experienced and have the self-awareness to know that it is impossible to know that's that's uh and end of

rant slash tip of the day for me simon yeah no that's that's well put i was gonna say if you guys want to know what the uh the bottom will be you know just take a calendar and pick a random date you have much as much as your odds of picking the bottom are as good as anyone predicting it so that's that's my two cents on it but in reality you know people can get lucky once in a while but no one can predict these bottoms or peaks on a consistent basis and if they do like brayden said don't listen to them i know it's easy you'll go on youtube and you'll get some ads with this guy in like a private jet or whatever saying like oh i make tons of money like trading and all that like oh you know sign up for this well first of all if they were

making that much money why the hell do they need you to pay to sign up for their service so that's my first thing and second they're full of, I'm not going to continue that because I don't have the explicit content on their podcast turned off. But yeah, that's the way to see it. Don't, you know, don't lose sleep over trying to time the bottom. Again, I've said it earlier in this podcast, we said it probably on every single podcast, dollar cost average, whether you do it on a regular interval or you know every time the market drops five or ten percent something like that every time it drops say ten percent you invest a little more another ten percent you invest a little more that

way you know you're not trying to trying to pinpoint the market and losing sleep over that and if you do get lucky hell yeah that's awesome that that over that. And if you do get lucky, hell yeah, that's awesome. That's great if you do get lucky. But don't expect to. That's where you need to really understand. If you get lucky, that's great. You're going to make a pretty penny. But expecting that you're going to get that bottom is completely insane.

I deployed tons of cash last Thursday, and it's up like 15%. And I look like some sort of, you know, I got some crystal ball or you know what? No, that's completely lucky. What if this week was a bloodbath? Then I look like an idiot, right? So it's impossible to predict. Long-term investors will continue to do really well. We're going to look back and whether you did it last Thursday, like my example, or tomorrow and it goes down a ton a week later, in the short term, you're going to look either lucky or unlucky, and it will not make a significant difference in your investing lifetime in the grand scheme of things. That's the main takeaway. Guys, I just updated getstockmarket.com. Head over

there, put in your email, put in your name. I send you the list of all of the North American dividend growth stocks that I'm looking for. All the metrics you want in one place on one spreadsheet available on the browser, or you can export it to Google Sheets. Mess around with the data. See what kind of metrics you like. See what the metrics I'm looking at for starters. Get your screening process all good to go. And we will see you later, earlier next week as we're on the two per week episodes right now.

Thank you guys for listening so much. This has been The Canadian Investor. I'm Brayden Dennis, co-host Simon Belanger. And we will see you soon. The Canadian Investor is not to be taken as investment advice. Brayden or Simon may own securities mentioned on this podcast. Always make sure to do your own research and due diligence before making 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 top

Canadian dividend stocks right now and other valuable investing resources, go to GetStockMarket.com.