The Canadian Investor - Episode 5 - Personal debt and bold predictions for 2020

Episode Date: December 30, 2019

In this episode we discuss if you should be investing when you have personal debt. We also make some bold predictions for 2020 on Apple, Freshii, SNC Lavalin, the marijuana industry and the stock market. Tickers of companies discussed : APPL, SNC.TO, FRII.TO, APHA.TO, WEED.TO, HEXO.TO, ACB.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

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I'm Brayden Dennis, joined by Simon Belanger. And today we're going to do something a little different. First, we are going to talk about who should not be investing versus who should be investing. When's the right time to focus on paying debt versus actually investing? And then we're going to switch gears a little bit to a fun part of the show. We're going to make some bold predictions for 2020. This was Simon's idea. How are you doing, Simon? Oh, I'm doing well, Brayden. I'm just kind of slowly getting ready for the holidays. Obviously, we're recording this on December 17th, so if people hear it, it might be a bit after that,

but yeah, just kind of finalizing my gifts and stuff like that. Nice, yeah. For the first time ever, I think I have bought most of my gifts before Christmas Eve so we're making some serious improvements so have those gifts been all uh Amazon or what yeah I did a little bit of Amazon and then uh one little quick mall uh outing but I think I need to do one more mall outing for some last couple gifts you go to the eaton center the eaton center is just man that place is the like that place gives me anxiety around this time of year so i try not to um i try to coordinate on my way home from work when i have to go to the west end there's a mall mall called sureway which is in mississauga which is pretty, but not as mentally insane as the Eaton Centre, like Square One, if you're familiar with those malls.

No, I only know Eaton Centre. Usually, if I go to Toronto, it's always downtown. Yeah, it's pretty cool. Okay, so Simon, who off the bat, who should not be investing? off the bat, who should not be investing? Well, personally, if someone has debt, at least debt like credit card debt, for example, which is usually really high interest in terms of like 19, 20%, but generally anything above like 10%. I think that's my rule that people should be trying to get rid of that debt before they start investing, mainly because it just, you know, you almost get guaranteed returns by eliminating that debt. And

for investments to go do that well, I mean, it's not impossible that they will do that well. And it's actually like given the current world market, who knows. But again, if there's a big market correction, you could, you know, you could feel the pain, especially if you have to pay your high interest debt. So that's something people, if they do have double digit debts, they should focus on that first. Yeah, I'm aligned with on that number as well. In this environment, anything over 9%, 10%, you're getting into some pretty high interest loans. So credit cards right off the bat. If you have credit card debt, what are you doing investing in the stock market? You cannot get guaranteed returns of 20 to 25%. If, uh, if you're investing in the stock market, you're not

going to nearly get anything like that reliably compared to investing in credit card debt. You can even call it investing and putting down your debt, right? I guess you're getting a guaranteed return. Yeah, exactly. And I mean, I have personal experience with that. So when I was probably around a bit older than you are, so late 20s, I made some bad financial decisions, I racked up some debt, so I had to tackle that down. And I ended up getting a consolidation loan.

So that's definitely an option, especially for those who would be listening and they feel like it's really they can't keep up with the payments, depending on your credit score and so on. But you can view different financial institutions. I think even there's offices that will specialize in that as well. So if you can get that, if you have a lot of debt, high interest debt, 15%, 20%, and it could be also student loans. I've seen those debt interest rates being pretty high. If you have a decent credit score and a stable job,

it might be worthwhile to get that refinance at a lower rate. If you can get that down from like 19-20% to even something as like 7-8%, which is probably feasible in this environment, that's something I would definitely recommend that people look into that. and that people look into that. And to avoid those payday loans as well. I don't know, I'm sure you know a bit about them, but those are usually super high interest and people, when they're a bit desperate, they'll do that. I've been read on that people end up going to family members afterwards because they just kind of get over their heads.

But those are some things you can do. If you can't refinance or your consolidation loans are too high for you to keep up, I would recommend getting some extra income, whether you get a second job. There's tools out there. I think there's Fiverr, there's Upwork, that you can get side gigs, get that extra income, pay down that debt, and then you can focus a bit more on investing. There is some debt, obviously, that's not as bad. I would say if you have a debt that's 5%, it's manageable, then maybe you can obviously pay down that debt, but also invest a small portion if you have the extra money to do so. Yeah, that's a good point. You can definitely

refinance that loan if you come out of school and all of a sudden you're making money, your credit score is decent, that would be a good idea to refinance it. Okay, I have another question for you. Should I borrow money to invest? In the stock market, particularly. In the stock market, particularly. In the stock market. Yeah, I mean, personally, I'm not a big fan of that. I think some people invest on, I think generally, I think people would refer to investing on margin, too. But I think you can get loans. The problem, especially with investing on margin, is depending on how your investment goes. If they do not do well, usually the bank or the financial institution

or your broker, whoever the margin is with, they'll have a stop loss where they will sell all of your stock to recoup the loan basically or the margin. So you have to really be careful with that. I personally do not do it whatsoever. That's my take on it. I know some other people have different views on it. What about you,

Brayden? 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. Yeah, I know it's a question that I threw around a lot, especially when I was starting to invest and I just was coming out of school and I didn't have that much capital available. school and I didn't have that much capital available, I figured, well, maybe I can just borrow some money and invest. And I looked at a shareholder meeting with Warren Buffett and

Charlie Munger during their annual shareholder meeting. And someone asked that exact question. And he said that if you are saving the right amount of money over a lifetime, you're going to have lots of money to invest in a patient way and that you don't need to ever borrow money to do it so that was his takeaway and I'm pretty much aligned with that I mean if you really need more capital to invest from you know collecting income at your job look at what your expenses are if If you really want more money to invest your personal capital, there's lots of ways to get more. Whether that's like you said, additional jobs. In university, I made thousands of dollars in cash just doing tutoring to science

and math kids in university. So that was really good cash. And then I was able to come out school debt-free and invest. But I think there's a lot of ways to get more capital rather than getting a loan or investing on margin, especially in the stock market where returns are never guaranteed. I would advise against it strongly. Yeah, exactly. And I know we're not all blessed with Braden's nerdiness, but no, but for real, definitely. Yeah, doing a budget, just kind of taking count of all your

expenses, where they are, what you need to live, what you don't really need, what's nice to have. I know one tip that I do is when I want to buy something is I'll just ask myself, like, first, do I already have something that does that? And second, do I really need it? And I would say 80, 85% of the time that the answer one of those is I already have something or I don't really need it. So I don't end up buying it. So if you kind of just go, especially in the world of Amazon where everything is like one click away, if you kind of have that discipline and then, yeah, you can get a side gig,

whether you're driving Uber, whether you're tutoring or whatnot, that little extra income and you put it aside and you start investing. The last thing about margins too is what's dangerous about them is it kind of goes against the basic of the stock market. So if you are getting a margin, especially in the bull market, and say there's a big correction, well, it will force you to sell it at a loss. So it kind of goes against everything where you want to buy low, sell high, right? So you might be forced to buy high, sell low. Yeah, we talked about this in the last episode about stop losses.

And I personally do not use stop losses for that exact point you just mentioned. It's basically the exact contrary to investing 101, which is buying companies at a discount rather than selling them out when they're all of a sudden at a discount because of a market correction, nothing wrong with the business inherently. So yeah, these are the kinds of risks you run with borrowing or running on margin. Just something to be aware of. So to summarize, if you have credit card debt, just pay down the credit card debt. That is the easiest way to get a 20 plus percent return by putting your money to paying that down. And then if you have high interest loans or any other type of, we're talking about payday loans or anything more, the rule of thumb we're talking

about is nine, 10%. I would target that first before you invest in the stock market. And then once you do, then you get to invest in the stock market completely stress-free. Yeah, and if you have more than one high-interest loan, it's pretty easy. If you cannot get it consolidated, get rid of the highest-interest loan first. Highest one, and then you go down and get rid of the second one. Perfect. All right, Simon, let's switch gears down and get rid of the second one perfect all right simon let's switch gears to the fun part of the show as we are winding down 2019 uh we're gonna come out with some bold predictions for 2020 um i'm not much of a bold prediction guy because i am so boring in

the stock market i think that's what makes you a lot of money. But it is fun. So we're going to do this. So Simon, let's kick it off with your first bold prediction for 2020. Okay, so my first bold prediction will be is relating to the marijuana companies that are listed on the TSX. I'm gonna just mention a few, but the four biggest ones I would think. So, Afria, Aurora, Canopy, and XO. So, my bold prediction is that at least two of them will no longer be listed on the stock market. So, that could be a variety of reasons. It could be that they just fought for bankruptcy. It could be that they get bought out by another company. But given the state of the marijuana market and how those companies have been racking up losses, I think it's actually not that much of a bold prediction to see that there will be some big shakeups

in the marijuana industry. Yeah, I think you bring up a good point. I mean, they're burning tons of cash. There's all of a sudden this large amount of competition, which I see as kind of unexpected on how this would shake out. And yeah, there's lots of room for them to consolidate in this space. I think that's actually a pretty solid prediction. I've talked about how they are not feasible investments at any of the valuations that have been posed since they IPO'd and all they've done is pretty much go up until legalization and then drop like a bag of rocks. So yeah, I mean, it's an interesting space to follow. I think that the business is legit. There's a lot of competition right now and very low profitability.

So I think you make a very solid, bold prediction. Yeah, and we'll definitely do an episode on that topic in 2020. It's on our radar. Yeah, I mean, I remember in, what would that have been? Was it October 2018 that it was legalized yeah i believe that's what it was october 2018 a few days before legalization aurora cannabis was trading at 218 times sales it's not that now i can tell you that that is crazy crazy. All right. I'll go with another Canadian story here on Bold Predictions.

If you guys are familiar with the fast food, healthy fast food chain, Freshie, and if you have followed their stock since they IPO'd on February of 2017, it has been an absolute IPO disaster. It has been an absolute IPO disaster. They IPO'd at $14.44 in February, and they currently trade for $2.23. So if you bought an IPO, you would be down 85%. That's not a good story for the IPO. one comes really surprising to me because they're in the right kind of hot and trendy space of you know healthy food they have the right branding i think they're branding strong and they actually hit 100 restaurants at like a record pace um and they're being compared to you

know all of these other big fast food chains that had hit 100 stores at a similar pace. So there's all this promising thing. They IPO and it's been an absolute disaster. Their CEO has been ridiculed for making very bold predictions in his management discussion and analysis. And then one quarter later, like slashing those bold predictions in half. So the market's not a big fan of that for a lot of reasons, but saying all these negatives, they're growing the top line double digit. There was 2017 wasn't a good year, but revenue growth was 26%, 46%, 41% and 31% in the years 2014 to 2018.

So the top line growth is there, and they've actually posted a profitable last 12 months with not a net income, but $400 million in operating profitability. So the story could be there. Things are starting to turn around. And the stock is pretty cheap for a small cap growth company in a trendy space at 57 million market cap. I wouldn't even be surprised if they were bought out by a company like MTY Food Group, which is a consolidator in that space of fast food chains and food court type of businesses. So my bold prediction is that they either get acquired or have a massive comeback. I believe in the brand personally, I think it's really strong.

And that's it for me. Any thoughts on that one, Simon? 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. 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. 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. No, I mean, I'm familiar with Freshie a little bit. I think I probably have gone there once or twice. I remember looking at them just quickly, maybe a year ago and not really looking back all that much. But yeah, it'll be interesting whether uh yeah that happens or not yeah and disclosure i do not own the stock thank god i never have but um no it's yeah my bold prediction is that they turn things around yeah uh so i'll go with my next one so i'll probably get a lot of people that hate me by uh with this one i think there's going to be a market correction of at least 20 in 2020 so that's really based on really the historic bull market warren whether you're

looking at canada us even the world i mean not as much emerging markets but definitely north america and i would not be i mean market corrections of at least 20% generally happen fairly regularly. I think it's once every five years or something like that. I think seven is the number. I mean, it's obviously skewed as this one continues on into its 11th year. Exactly. And I would not be surprised for up to 30, 35%. I mean, it would be painful for a lot of people, but I see that I'm actually, I would get excited because it's a buying opportunity for

a lot of companies that I would love that I find a bit overvalued. So, and we did an episode recently on that. So that is my prediction. There will be a market correction of at least 20% in 2020. That is bold. I hope you're right, to be honest, which is uncommon. You probably don't hear that very often, but that is true. As someone with a long investment horizon, I hope you're right. We can get some good businesses on sale. Just because I agree valuations are expensive, I think buying stocks

right now is still the play over fixed income, even though what you're seeing could potentially happen. Yeah, and it'd just be a good opportunity. That's how I see it. good opportunity that's how I see it all right I'll move into my next one Apple is carrying well over a hundred and fifty billion dollars in cash on their balance sheet which is quite insane to think about and I think that it was actually more before I'm not I haven't followed the story completely, but that much cash, they've been waiting on the sidelines for a long time to do something really big. Because their cash flow generating machine is one of the biggest companies in the world. Their products are loved by people all over the world at very healthy margins. So I think they could be doing something bold and I'm not really

sure what that may be at this point in time. I think they're losing the music streaming war to Spotify and I think they're losing the video streaming war to Disney and Netflix and Amazon and whoever else decides to join that next week. So I think there's a lot of segments that they have a presence, but they're just like doing math in. And I think that could be big for them if they go ahead and buy someone, one of their competitors. We talked offline before about potentially them going into the fintech space

to tack on to, you know, I think the Apple Wallet thing and the Apple Pay has been pretty successful for them. So if they want to continue to dominate in that space, we talked about Square and Stripe. Those are huge, huge companies. But everything's in reach when you have $150 billion in cash. Something bold like that could happen. I think Stripe is one of the most valuable businesses in the entire world right now. Anyone who does e-commerce knows that Stripe is king in terms of accepting payments online. That could be big for them.

Who knows? I think it would be a very hefty price tag, but anything is possible. Who knows? Yeah. Do you think they might actually increase their dividend? This is your cue to what we were talking about before. I actually think that's less likely by a lot but I mean that would be them signaling to investors okay we've looked long enough with this massive cash pile and we're not seeing anything so we're gonna boost the dividend dramatically. I think they're gonna continue to boost the dividend you know at the pace

that they're looking at which is quite a healthy growth amount. You were talking about something like massive, like a 30%, 50% increase. They could with the amount of cash that they have. I'm just looking at their cash flow statement. In 2018, they bought back $72 billion worth of stock. In 2019, they bought back $72 billion worth of stock. In 2019, they bought back $66 billion worth of stock. So they've actually bought back almost close to the, a bit more than their free cash flow in terms of stock repurchases.

So yeah, they do have the cash to do it. Whether it's increased the dividend by like 20, 25, even 50%. An increase of 50% would be like they would pay out less than 40% of their free cash flow. It would still be like well within reason. But yeah, they do have a lot of money on hand. So I could definitely see them do that this year. Yeah, interesting. You bring up a good point yeah 72.738 billion

in stock repurchased in 2018 their stock was really cheap back then um yeah for some reason apple was like a huge value stock for for a while there and now it's done so well because of that i think so uh yeah that's that's that's it for apple let's uh lead into your third and final bold prediction for 2020 okay so my next one will be well known to canadians if we have american listeners probably not as much but it's uh the engineering firm that's known worldwide but uh was originated from quebec uh so they've been entangled in this big political mess with the Liberals. I think that's still in court right now. My prediction with them is they will either be bought out by another company

because the company will see value in its assets and the contracts that they have right now, or they're going to file for bankruptcy and then be bailed out by a government. Oh, bull. Yeah. I thought when the whole scandal was happening and you could buy them for a bag of hockey pucks that you were basically getting a free engineering firm

by buying them because basically the amount of their stake in the 407 highway that spans east and west in Ontario was worth what you can buy them on the stock market alone. So talk about a margin of safety getting a free engineering firm. So I think the engineering firm is still really, really strong. It has a global presence could be an acquisition target for a true engineering firm like WSP yeah I like that that's a fun one yeah and I like I also said SNC level

a yeah yeah that's how you say it the correct pronunciation now i know yeah so that one will probably make some people hate me but i figured i'd say something bold i think it's more likely that they get bought out if um they uh their their price kind of remains fairly low it could be a good value play for another big firm. Yeah, no. During their huge pullback, it was serious value play. I think it's done really well for you if you bought it back then. Let me look. I don't think so.

I'm just looking at it. So they fell. Oh, no. I'm dating myself because back in october and november they they shot up 65 percent from uh from the end of summer to mid-november so i mean it's been it's been decent if you timing it isn't virtually impossible but uh it has rebounded a little bit, but yes, way off its high of $60 back in June. Yeah. And they are losing money now. Yeah, and the problem is they're having more,

I think I read something about them having a bit more issues like finding contracts because governments are staying a little more away from them because of the whole controversy going on. Maybe that's more short-term basis. But again, if they were to be bought out, you drop the name, you incorporate them into your firm, you leave that baggage aside a little bit, a bit of marketing. So that's why I feel like it could possibly happen. It is, and that's why i'm i feel like it you know it could possibly happen it is and that's

why it's called bold predictions that's why the name of the name of the game is bold predictions all right um i think let's wrap that up here so simon's uh a pessimist he thinks that the market's gonna implode i'm just kidding exactly yeah you guys can all blame me if there's a correction. I'm sure maybe Trump will start tweeting and say it's my fault that there is a big market correction. Yeah, me and you were actually texting about that, about how he is able to swing the market massively during the day just by putting out some tweet about their relationship with China and how the trade war is going on or even anything like his opinion on the weather. It's unbelievable how much market manipulation he has via his Twitter account right now. And you got to wonder if he has some buddies that are aware of what he's about to put out

maybe that's your bold prediction as well yeah someone in his circle gets caught for insider yeah i mean like you could easily say like obviously i'm not saying this is happening or anything but i could easily be like oh i'm gonna tweet about china this afternoon make sure you know you keep that in mind. Yeah, exactly. Short the S&P really quick. Yeah, exactly. Yeah, no, you bring up a good point. Is that legal? No, probably not. I'm sure that you've actually looked into that. I mean, I'm sure that's borderline insider trading. I know it's not

the classic definition, but definitely a way of at least manipulating the market. Trump's been doing all kinds of things over his career to manipulate all kinds of different industries, so it would not be surprising in the slightest at all.

No, exactly. Alright, everyone. Thanks for listening. As always, go to getstockmarket.com to ask any questions that you may have or list a company that you'd like to see us review. The idea is for Simon and I to look at the company, not necessarily be experts on that company, or maybe we happen to be, but to get the initial thought process of the things that we're thinking about, the first kind of scans we look at when we're in the screening process of deciding if a company

meets our typical investing methodologies. Yeah, exactly. And I just want to take a few seconds and wish you happy holidays uh brayden i think we might be recording once more before christmas but for the listeners um this might be the last podcast of the year probably i'm not quite sure but just happy holidays to everyone and their families best wishes and happy new year the can 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 top

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