The Canadian Investor - How to Make your Mortgage Interest Payments Tax Deductible

Episode Date: May 8, 2023

In this episode, we start by talking about the Smith Maneuver which allows homeowners to make their mortgage interest payments tax deductible. Braden then goes over the parallels between investing and golfing. We finish the episode with stocks on our watchlist. Symbols of stocks discussed: AXON, IHI, TMO, DHR, SYK, MDT, BSX, EW Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapitalSee 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. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. The Canadian Investor Podcast. Welcome in to the show. My name is Brayden Dennis, as always joined by the very handsome Mr. Simon Belanger. Welcome into the show. We are talking, what are we? I got to scroll down here. What are we talking

about? You're talking about the Smith Maneuver. I'm talking about golf and how it relates to investing. Wow. Surprise, surprise. And then we have a nice juicy stocks on our watch list presented by our friends at EQ Bank today. So nice and simple simple but very uh very valuable episode today yeah i think so i mean uh i guess we'll get started so the smit maneuver it's something uh we've had a few people request that over probably the past year or so and you know just it was on the list and i finally got to doing a segment on it so the smver. We have a list of like 30 topics that have just gone to die in the topic list here. We've done a few.

I actually removed some because we had done them. So it's looking a little less intense than it was. Okay, good. So the Smith Maneuver was developed by Fraser Smith who was a financial planner based in vancouver in the 1980s this um like i said it's something that seems to interest a lot of people and we actually i think got contacted by a son who perfected their uh the the smith maneuver over time so maybe maybe at some point we'll get him on this show. Yeah, I just, I was, yeah. Really?

Yeah. Were they in our inbox? Yeah, a long time ago, maybe a year and a half, two years ago. Yeah. Wow. I know, huh? I have to dig that up. It's actually the search function from Google, from Gmail that worked.

I'm shocked. Now, in short, before I digress again, the Smith Maneuver is a strategy that enables you to make the interest on your residential mortgage or your principal residence tax deductible. So the basic here is to borrow money to earn an income. That's because anytime you borrow money to earn an income, you can deduct the interest costs from that. Before I continue here, I'm not an expert on this strategy. And if this is something that interests you, I would definitely recommend that you consult with a professional accountant or a tax professional that can help you out because this is a tax strategy here. That's why if you have an income property, you can write off the interest off of your mortgage payments on your taxes because it is an income property. And if you're interested in investing in income properties, make sure that you give a listen

to the Canadian Real Estate Investor Podcast hosted by Dan and Nick, part of our network, because they talk all about this good stuff. The SMIT Maneuver is a way to write off that interest on your mortgage payments on a residence that does not earn income. So first, you have to get a re-advanceable mortgage. So this allows you to re-borrow part of the principal paid down by adding a line of credit to the loan or a HELOC. You then use the funds that are available from the HELOC to invest in things that provide an income

like dividend stocks in a taxable account. And let's underline that because obviously, for a lot of people, it may be obvious, but if you're not aware of this, you would not be able to use this strategy with a tax advantage account, just like an RSP or TFSA. It has to be a taxable account. You end up not really paying off your mortgage because the equity you gain, you reborrow

it to invest via the HELOC. What you're doing is you're essentially transferring your mortgage that has interest that is non-tax deductible to your HELOC. That is provided that you invest in assets that provide income like dividend stocks. I'm pretty sure that ETFs like an S&P 500 ETF would qualify just because it does provide a distribution. If all goes well, you end up gaining in a couple of ways here. So your investment performs well so you end up gaining the difference between the returns of your e-lock rate and your investment returns so if your e-lock is five percent and you get eight percent returns on your investment that's

a three percent spread that is a gain for you the added added benefit, of course, is that you also get to deduct the interest paid on your ELOC, which reduces your taxable income and adds to your returns. Now, there's some pros and cons. Pros, obviously, you convert your mortgage from being non-tax deductible to being tax deductible. And two, you can pay off your mortgage faster if and that's a big if your investments do well and you use that spread that i talked about earlier to pay off your mortgage faster now the cons are pretty significant because this kind of strategy i have seen i do go on reddit from time to time and i've seen a lot of people using this strategy in distress in the past year and a half. It was, you know, awesome when rates were low, when your HELOC was a couple percent. But the issue with the HELOC is

that it's variable. So I just did a quick Google search and that might not be the best rates you can get. But right now it's around 7% for HEL HELOC because you have the base rate, so the posted rate for the financial institution, and then there's an added percentage to that for the HELOC. So essentially, you're using leverage, and whenever you're using leverage, you increase the risk. And that's especially true if anyone would have used this strategy in the past year. Like I said, HELOCs are variable, so it's gone this strategy in the past year. Like I said, HELOCs are variable, so it's gone way up in the past year. It can become problematic in rising interest rates like we are seeing right now because the HELOC is just really high. And in my opinion, the risk doesn't really make sense in this current environment. In other words, your mortgage

payments are increasing while your returns are stagnating or going down. So if the markets are not performing well or your dividend stocks are not performing well, you can get in trouble, especially if you end up losing your job, for example, and your investments, which you had borrowed from your ELOC, go down 10, 15, 20%. So if you're forced to sell those investments to pay down your E-lock in that kind of situation, it's not a great situation where you end up having save or being able to deduct your interest might not be like the best move in hindsight if you're stuck in that situation. The cons, obviously, it's variable debt. And then once you do the math, even if you think it might be worthwhile or not, you have to make sure you really understand the math behind it because depending on your income and the fact that the

income's from a taxable account, I mean, it's not all tax-free, so you're reducing some of that income as well. So there's definitely some pros and cons. This is a more simplified version of trying to explain what it is, but I figured it was worthwhile looking at it because a lot of people were asking for us to do a segment on it. It's kind of brilliant, actually. It's a pretty brilliant form of financial engineering to be very tax effective. The problem, I guess the main con, as you highlighted, in every strategy that utilizes leverage is that it utilizes leverage, right? Like that is in itself the con. Businesses that require high amounts of leverage and strategies that require higher amounts of leverage all suffer from the same

issue. And the fact that there's only three ways to go broke, according to Charlie Munger, liquor, ladies, and leverage. And I couldn agree more it's it's great when rates were at where they were and not so great today the unit economics kind of fall apart um it's something i've never done have you ever no have you ever no i i haven't by you know by the time i started reading on it the rates it was kind of last year, so rates had already started to go up. And it's also something, you know, I have a wife, we have a shared mortgage. So, you know, kind of going over that with her and trying to make sense of it. Never, I mean, it's just the downside seems just too high.

It's just the downside seems just too high. At the end of the day, if you're not seeing any reduction in income, you'll probably be okay. But again, your mortgage payments are susceptible of going higher because your HELOC, as you borrow more on it, if rates are going higher, you can really get screwed if you want with that strategy. So, you know, it's definitely interesting. If people are interested, make sure that you do your homework on this and that you understand the risks. Because, yes, there's some upside and there's really significant upside, but there's also some significant downside as well.

yeah i i know just from doing the pod that people have asked for us to do segments like time and time again on the smith maneuver and uh how great it is and i and i believe all those things to probably be true and i've never done it and i've never had any experience for it and i i wouldn't be able to talk my way around the pros and cons like you just have. So I'm going to leave it at that. I'm going to say it was great until we haven't had that many people requesting it in the past year. So I think that's exactly. Yeah, I think we had a good proxy, isn't it? Yeah, exactly.

I think we had one person and that's kind of what, you know, brought it to light maybe a month or so ago. to lie to maybe a month or so ago, but we had multiple people requesting it in 2020, 2021, which I think is a good indication of the risks right there that people are seeing. Risk on, rates low. And if you don't believe me, yeah, just go on Reddit. You'll see stories of people that did this at the wrong time and they are in a really tough situation anytime i see something kind of as complicated as this uh to get some like marginal benefit i'm sure some of the benefits could be awesome but like i just have so many

priorities that are competing in my life in terms of like mental effort in terms of optimizing my finances and it's just like so far far down the list you know like i couldn't even yeah i mean you probably can do it and that i may be wrong but you can probably do it with GICs and like investments that are typically safer because they generate an income. Right. So there's probably some ways to do it, but you'd never get away from the rising interest rate risk. That's one that's always going to be there. And yeah, exactly. So, yeah.

Anyways, food for thought for people interested. Like I said, full disclaimer, you do your due diligence. Definitely, I would consult with a professional at least when you get started to make sure you're doing it correctly. 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. Now this translates, this segments well, extremely well into my next segment. And at first you're going to be like, how? But just wait. It works exceptionally well, especially when it comes down to simplicity. This is what I have learned from golf and how it can be important to some things that are important to think about both as a golfer, as an investor. And you know, I like these analogies. I do them on the podcast all the time. I can, I like to combine my interests into content here. And so sports naturally make their way onto the podcast. I've always thought baseball is a very good analogy for quant analysis and valuation. I've now realized golf is

a wonderful parallel to the mental game and psychology of investing. And so, you know, I was playing last weekend, you know, as I do, and most golfers will agree they perform best when you do the following three things right. And those three things that I've listed here are, have very strong fundamentals in your golf swing. Number two, keep it simple. So now you know why I'm relating it to number one. And number three, remain calm and level-headed at all times. So if I can leave the golf course confidently saying that I did all three of those things right that day, I had a good day. I played well. I can confidently say if I did those three things right, and I can say it honestly, I had good fundamentals,

I kept it simple, and I remained calm when things were getting a little dicey because they sure do. I probably had a good day. And the reality is that those three qualities are exceptionally good for a good investors. And let's go through those. So number one, strong fundamentals. I'd like to draw here on a Peter Lynch quote to set the stage. The basic story, so here's the quote, the basic story remains simple and never ending. Stocks are not lottery tickets. There's a company attached to every share. And Peter has all kinds of these little two sentence liners that remain just so relevant, you know, decades later on just like stocks are not tickers that move up and down randomly. Sure, they do on a day to day, hour to hour, week to week basis, but not on multi-year investment horizons. There's a company attached to these shares and their performance will be directly correlated to the performance of the stock. And successful investors with long-term track records of wonderful performance, wealth creation, are really good at sticking to the fundamentals and what matters most. And that is tracking the core business fundamentals. You know,

price sentiment drives the narrative so fast. Look no further than the price swing in meta stock over the past 24 months that has had multiple round trips, both on the upside and the downside. Just like in the last two years, and we're talking about a business that in that time has reached daily active users of one third of the global population among their family of apps. The business fundamentals have remained strong. The capital allocation, I don't know if they've remained so strong. But look no further than the price sentiment driving that stock. Zuck's an idiot to Zuck's a hero. Round trip. There's a company attached to these shares and focus on the fundamentals and do the little

things right. Like following a select set of metrics that are core to the business over time, executing your DCA strategy that you're actually say you're going to do is like, you know, it's fundamental to your strategy. So you better execute it. Well, minimizing fees, like the core analysis and portfolio management skills. If you do just those things, right. Just like the top five most important things that you think you need to do correctly. If you do them well and mess up a few other things along the way, directionally, you'll do quite well over the long run. Yeah. Yeah. I mean, I think the basics is usually, you know, or basics are strong fundamentals. I mean, that usually saves you, right?

If you kept businesses, for example, we were doing this podcast back then, didn't have the listener base quite that we have right now. crash happened with COVID-19, I mean, for a lot of people, having companies that had strong fundamentals probably prevented them from panic selling. Whereas if you had companies that weren't on solid footings, I'm sure there was tons of people that panic sold because they just either did not understand the fundamentals or didn't think the company would survive this period. So they just sold at a loss. And I think that's just something to me, at least to remember where it's much easier to hold on to a company that has that, you know, well, and that also has strong fundamentals. Number two, keep it simple. Every single golfer will know exactly what I mean. Keeping it simple with

your approach to the golf course, the approach of your swing, complexity rarely leads to a good outcome. Now, unless you're in some special situation, investor, deep value, dumpster diving, or running a fairly complicated long short strategy options, which I know most listeners aren't doing and good. Keep it that way. Keep it simple. Every time I have a complex investment thesis where I need multiple factors to come together to be right, I need to be right on the macro. I need to be right on the management team executing. I need to be right on X, Y, and Z happening. The list of companies that that's panned out extremely well for me is quite low. It's not that it doesn't happen. It's not that I haven't had some complex thesis and it hasn't happened

or had a good outcome, but that list is a lot shorter than good outcomes with simple investment theses. And businesses I know well, where I have a simple understanding of the inputs that move the needle, where I think there might be mispricing based on just one simple fact, tends to be my best winners over the last 10 years when i look back on my performance so for some folks this might be as let's keep it simple and allocate to a low cost index etf like that's as simple as it gets and the outcome is extraordinary here yeah Yeah, the KISS strategy, right? Keeping simple as stupid. That's what it is. Yeah, exactly. I mean, I like that, right? I have a decent amount of index funds and I think we're both

similar in that way in terms of not having too many holdings. I think that's an easy way of getting too complex is you just have too many businesses to follow no matter how simple or complicated they are to understand the more you have and the limited amount of time that we all have in one day the more complex I think it will be so that's just something you know I try to do on my end is I know I just have a set amount of time every week I can dedicate to companies that I own. And I kind of align my portfolio with that. This actually will relate really well to my stocks on our watch list segment here, which is keep it simple.

All right. Number three, remain calm and level-headed. Staying calm and level-headed. Look, I mean, lots can go wrong when you don't know the outcome of events that are going to happen in the future. That's just life. When something goes wrong on your plan, when you're on the course, instead of focusing on executing the next shot, your performance is just going to be not there. Your mental is not going to be there. And in a time of stress in tougher situations, quick panic decision-making is just poking its ugly head out. And some of the worst investment decisions are made during

this timeframe. I'm guilty of it, no doubt. I think we kind of all are as humans. I think I'm pretty good at just being like, okay, this is not the time for me to be making decisions at all right now, but that doesn't mean I've never done it. This is particularly hard in practice. When you see massive swings in stock prices, you're bombarded by financial news, panic media all day long, the red screen across CNBC. It goes back to number one and two, remaining calm is a lot easier when you focus on the fundamentals and keep it simple because you're in your process, you're in your flow state. And so you're not putting yourself in situations where you have to make irrational decisions as often. But those will come up. You're going to be in a sticky

situation. And I think that it comes down to the psychology of investing and behavior biases being so important to analytical skills here. Managing these things well, these three things well, I think directionally, you'll do quite well over a long period. And of course, your analytical skills and your investment decisions can always improve over time. I think that's kind of the goal. But these three things just require a little bit of time and patience. It doesn't require reading long, lengthy books, analytical skills, strategies, reading balance sheets. You know, there's no complex forensic accounting required to do these things right. And that's the beautiful thing about it. Yeah, yeah, I think so. I think it's easy to get worked up and make a rash decision.

I think, you know, one that comes to mind for me is, say you own a really good company, whatever it is. Maybe I can just use Canadian Natural Resources. It's a company I own. And say there's a lot of distress happening in the oil and gas sector. You know, companies are falling left, right and center. But Canadian National Resources is on solid grounds. Well, it's easy to panic and sell a really good company just based on that because you're seeing it in the news.

You know, there's a lot of bad press. I mean, even commercial real estate in the US, I'm going to go ahead and say I don't know all these REITs or private real estate funds or companies in the US. Even if the sector might be struggling as a whole, and I'm sure some companies will go bankrupt, there may still be some really good companies that some people might hold and if they know them well and they know the sector well and they forget about the noise they can actually make a killing with those investments so i think it's especially true when there's a lot of bad press around a sector or company or whatever it is that's right because at first you're like

uh-oh okay this is bad all right let's let's Because at first you're like, oh, okay, this is bad. All right. Let's work backwards here. You're going to remain calm, level-headed. You're going to keep it simple. And then you're going to focus on the fundamentals. If the fundamentals are deteriorating for these businesses, then a decision is to be made. But Chris Meyer, the author of 100 Beggars, he gave a sick shout out to Stratosphere on Twitter, which has made my day. And he was using it to track volumes of parts from Copart. And so he was sharing it online and they had like a... I think it was Copart. I'm like 90% sure. Anyways, he was tracking volumes for the business and they had like a, I think it was Copart. I'm like 90% sure. Anyways, he was tracking volumes for the business

and they had like a softish quarter and the stock was down or something. And he just posted the graph of that metric over the past 10 years. And he goes, I'm reminded of Thomas Phelps's original 101 book on underbag, that these numbers would never suggest any indication of a business that I should be selling right now, even though the stock price may be moving a lot on expectations. And so

every single successful majorly winning stock like look at like monster energy it's like 100 bagged like a couple times the stock's lost like 50 to 60 percent of its value multiple times during that run-up um that's a good book i think that everyone should read hundred beggars yeah and especially for the sectors right if if there's really pessimism around a sector as a whole, the stronger players, you know, they may get pulled down with the tide, but if they're really strong and their fundamentals are good and they have a track record, you know, it's counterintuitive, but they will most likely end up coming out even stronger of this situation.

Yet the market in the moment is actually, you know, being extra pessimistic about that. And that's something to remember. Do you know that meme of the guy who has his hands together and he's behind the tree and he's like he's like excited he's like looking at his chops you know the meme where he's behind the tree he's holding his hands and he's like really excited no i haven't i can visualize it but we gotta get it on the dock man um i'm just picturing that's like jamie diamond right now yeah exactly that that kind of but it's it's true though right like if you have a sector stronger businesses, if there's turmoil in that sector as a whole, what will happen is the strong businesses will be pulled down along with the rest, usually not as much.

And then they'll usually be in such good financial position that they'll be able to pounce and get amazing deals. And it may take – oh, yeah. And it may take, oh yeah. And it may take some time. You can see, there he is. Yeah, exactly. You should share that. Oh, I can share my screen, yeah. Oh, look at that.

Yeah. That's Jamie Dimon right now of J.B. Morgan. Yeah, exactly. Like what? You know, 10% of deposits? What are you talking about? That doesn't exist. Go back to our previous episode if you're wondering what I'm talking about.

So good. All right. Should we move on to stocks on our watch list? Yeah, let's do it. Yeah. Before we go on blabbing about random stuff. 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. And memes. All right. So this is Stocks on our watch list presented by our wonderful friends at eq bank you got one i got one ish if we call it that um we'll see kick it off first yeah so the one i have is axon so this is company i've had for a long time but it's a small position it has performed really well for me but because it's a small position i sometimes forget forget about it. I'm guilty of that. And I mean, I usually look at it like once a year. But for that segment, I was kind of thinking about it a little bit, wasn't sure what to put, and kind of went through Axon's recent results.

And I figured it would be a good company just to highlight here. Good company just to highlight here. And for those who are not aware, Axon was formerly known as Taser. So the electrical, you know, gun that people are familiar with. If you're not, go watch the hangover, the first one, for a good scene on Taser. So, yeah. I think I know the scene you're talking about. I certainly know what a taser is. Yeah, when they get, they steal a cop car.

And as a way to not go to jail, they basically tase all three or four guys in front of kids to show them that they should not do crime. It's worth seeing. Okay, kids, don't do this. Don't do that. Dude, that must, what would that even feel like not good not getting tased i don't want to know i feel like that i feel like the guys on like jackass have all tased each other a couple times it looks pretty painful yeah but at least uh so they essentially specialize in non-lethal uh you know weapons if you'd like like taser but also have body cams so the ones that

law enforcement officers would have on them so you know they do sell some hardware which may not sound like the most attractive businesses for people who kind of know how hardware is if you're not an apple usually you know you're not killing it on selling hardware but what makes axon a really good business is their cloud platform axon, which allows law enforcement to store all their evidence in one place. It makes them extremely sticky. Once they're essentially the provider for that law enforcement, it's really unlikely like you know if you purchase and some apple products and you start using it and all your friends have iphones like it's really hard to go back to an android or a pc after that and that's a little bit what axon is doing for the law enforcement space here now

there is competition out there but but Axon is the clear market leader in the space. Revenues have compounded at a 21% rate over the last five years. Annual recurring revenue, so part of the software as a service business, is now 40% of their total revenues and has compounded at a 46 rate over the last five years and i'll actually share my screen because i was pulling this up at the uh the beginning here dude this acts on like the sass annual recurring revenue line item that they break out has had a ridiculous run up like uh such a good like you just got to respect the management team like seeing such an opportunity to make this business more sticky monetize it even further and at such higher margins like you know you get in there with

the hardware and it's like now that you're in with the hardware, you're actually in a pretty good spot. Yeah, exactly. And for those looking at the video, you'll see. So in the orange and people listening, you can visualize this. So in 2017, you'd have the majority of their revenue by far was just hardware and other things. It was not recurring revenue. just hardware and other things it was not recurring revenue and then as you go through 2018 2019 2020 21 22 you can see that chunk of the recurring revenue so software as a service that they have is really high so it really makes them a good business and you see the other metrics on

stratosphere it's almost like all up so these are good these are good metrics that just all go up into the right yeah welcome to axon yeah exactly so that it's it's a really interesting business for that uh some of the other things to note here free cash flow has gone from close to zero in 2017 to 179 million last year free cash flow per share has also been steadily increasing over the last five years, with the exception of 2020 for all of these. I think we can give them a pass because most businesses had some issues in 2020 with COVID. They've been around 120% of net revenue retention, which is really impressive. And there are some issues. I would say the biggest issue for me is share dilution. So share count as compounded at an annual rate of 6%, which is not great.

And the other thing, I guess that's a knock on Axon is it always trades at a pretty high valuation. So you're never really going to get this as a super cheap rate. I mean, when most SaaS businesses or tech businesses are seeing kind of slow down in the past year or two, this is one of the few companies that has kept growing and has increased profitability, which is it's pretty amazing in the current environment to be honest this transition that they've undergone the evidence.com that's what it's called right evidence.com yeah they well evidence.com yeah they they name it um i think axon evidence now but it's the same thing yeah but if you go to evidence.com

it is like you can log in from pretty much anywhere which is extremely useful as well right yeah that like web-based web first uh application layer is just such an advantage you know you and i have talked about this name a handful of times on the podcast here and there. We always have kind of great things to say about what they've done with the business in the past five-ish years. The stock's done exceptional. So congrats to you on that. Margins have expanded, this annual recurring revenue has expanded, and the ecosystem for them to succeed in a more like less violent crime um or police force accountability solutions accountability exactly that's a driving force kind of uh from a secular trend level for the business that

certainly uh helps them it's still run by the founder, as I understand, which is nice to see. Lots of good things to see. And then, yeah, with every single tech company that has had this kind of staying power, you look and you're like, ah, the price is, is the price right? I'm not sure the price is right. And the stock-based compensation, if you back that out onto free cash, it's not, you know, if you're going to put that back that out of free cash, it's not quite as profitable as you think because the shareholders are getting diluted. And so those things give me caution and concern with all of these tech companies. But other than Constellation, you're looking at SBC everywhere.

So it's hard to really differentiate. Yeah. And at least the important thing is if you're looking at tech, I think for me is just making sure that free cash flow per share is increasing. I think that's really important. If you have that, then I think the dilution is not as much a problem. But once that starts to decrease or kind of plateau, I think that's when the share dilution becomes more problematic. By the way, if you go to the per share tab and under ratios, you can find free

cash flow per share. Yeah. Well, I usually just search it and i get to it that way oh yeah you can search it too that's that's true uh let's talk about my list here which is a collection of healthcare names but there's a there's a twist here so i've been hitting the idea well in healthcare i think it was last week you and I were talking about it and there's just going to be such beautiful category winners in this area of healthcare. And there's these kind of picks and shovel plays in the background that are really, really good compounders. And the only name I own is Intuitive Surgical, ticker ISRG, one of the leaders in robotic assisted surgery. Fantastic business. It trades at nosebleed multiples, but it's a wonderful business.

Now, the notable names I'm currently digging into in this area that I think are extremely high quality, I went on the platform on Strysphere And I excluded biotech and drug manufacturers because it's not an area I particularly want to play. And so that gives you basically diagnostics and medical devices for the most part. And the names that I'm looking at in this list are Thermo Fisher, Donaher, Striker, Medtronic, Boston Scientific, Becton Dickinson, Edwards Life Sciences. There's also Agilent Technologies to name just a few. All of them just have compounded exceptionally well. Pretty much all of them on that list, both growing organically and through acquisitions. There have been some mega

compounders in the diagnostics and instrument spaces here. The picks and shovels, if you will, of the healthcare industry, it's agnostic to the boom bust of the biotech and the drugs waiting for FDA because they are the customers of these companies. They're consistent growers, they have nice margins, the recurring revenue streams from the instruments, the software and the services, highly regulated, pretty wide moats. They grow organically and tuck in acquisitions. Talk dirty to me. Those are all the things that Braden likes. The problem is, where do I understand them well enough to own positions? I've done enough work in intuitive surgical over the last five-ish years to own the position.

I've done the table stakes. But what about the rest of this group? How am I going to know Edwards Life Sciences' competitive advantage? no Edwards Life Sciences competitive advantage. And introducing the first ETF to ever make it on Stocks on My Watch list in the history of the podcast, ticker IHI Medical Devices ETF. Shout out Adrian. He's owned this for as long as I've known him. I asked him today, I was like, do you still own this thing?

And he said, I actually sold it and put it all in Thermo Fisher and Donaher because they removed Donaher from the ETF. And so for some unknown reason, one of the largest positions of the entire fund is like Thermo Fisher, Abbott and Donner are the three big life sciences names that are in here. Big mega conglomerates, high performing conglomerates. Donner is not in here anymore. So BlackRock, I don't know why. So there's something to dig into there. So that's one thing that would keep

me back from owning it. And there's a 39 basis points a year expense ratio, which is a little high for ETF, even a specialized ETF from BlackRock feels a little high. Over the last, since inception in 2006, total return has been 576% compared to just 208% for SPY, the S&P 500. So it's doubled the index during that time. It's compounded at 12.1% since inception total return after dividend. Pretty exceptional results. total return after dividend. Pretty exceptional results. I just want answers to the Donaher question. And it's a little expensive on the expense ratio. Other than that, it seems to have solved my problem because I kid you not, Simon, everything you see above the list here,

all those companies, Thermo Fisher, Stryker, Medtronic, Boston Scientific, I wrote those out from the screen. And then you look at the holdings below here, this from the screenshot of IHI, and they're basically listed in that order. And then a bunch of tiny, smaller names in there as well. So, I feel like I've found a great play on this, but I have my two concerns as well. Yeah. I mean, I, I'm a big fan of like thematic or kind of sector specific ETFs just because, you know, especially in types of industries that may require more time to better understand, or maybe it's just too complex that you'll never understand them. I think these are a perfect way to get some exposure. Like you said, I think it's pretty common. I think the management expense ratio, the FISO, I think it's pretty typical between- It's in line.

Yeah, it's in line. I think I've seen depending on the ETFs and the team or whatever it is, I think between 30 basis points and 60 is kind of the range. So I don't think that's overly high. It looks high compared to an index ETF, but you're not getting an index ETF. So that's the difference. But I like it. I personally, it's one I'll add on my watch list because that's probably something I need more exposure to. Those companies in a basket I know are high quality. And I have to look into yourself and find that I don't have the willingness or capacity to understand all of those names extremely well. But I know as a basket, I know that those are high quality names, the category winners in healthcare, the picks and shovels being the instruments, software and devices for the healthcare industry. So I'm all

in on that. I just have no idea why they removed donner because that's a stock i'd like to own too maybe yeah if i'm gonna own this basket send an email to uh to mr flint mr fink fink fink i was like flint flint michigan yeah yeah mr larry fink i'll have to uh get in his inbox i'm sure he'll respond directly to me very quickly. Yeah, exactly. Yeah. Thanks for listening, folks. Maybe I'll have to buy an ETF for this thing because I swear I came across it organically

after I saw the holdings. It was like, I just asked for this and here it is. It's a product. It's called the IHI US Medical Devices ETF. Yeah, and there's nothing easier to dollar cost average

than an ETF too. So it's just an easy way, especially. Keep it simple. Exactly. Especially if you have like commission-free ETFs. It's a great way to do it.

Appreciate you tuning into the show. We are here every Monday and Thursday. Stay tuned over the next few weeks as we sort out the meetup this summer. We have some things cooking in the background that we're not quite ready to share, but we have some things cooking in the background. To get the group together, get the listeners of this show, the Canadian real estate investor as well. All together. We're looking at venues. It should be fun.

Maybe a live podcast, maybe a Q and a drinks, food, um, details to come that we're still sorting out, but that I expect us to have some sort of announcement over the next few weeks ish. Does that make sense? Yeah, we've got make sense yeah we've got uh we've got

a few options so just need to uh to sort it out and then we'll uh we'll have all the details we'll announce it on the podcast and so will the the guys from the real estate podcast too i expect the venue for us to be around a hundred people and those tickets will, it will sell out fast. So if you want to go and you're listening to this right now, and when you hear us announce it, you're like, you won't have an option before, before it starts to, yeah, sure. I'll go to that.

The tickets will 100% be sold out because it's only going to be 100 and we're combining both podcasts. So just be aware of that and it's going to be out of our control if you don't get a ticket. Yeah, and I have assurances that I will be off of daddy daycare for that evening. Oh, good. Good. Unless people want her to make a special

appearance but make an appearance well that can that can be arranged too yeah she's just uh you know i'll probably be past her bedtime a little bit but yeah that's true i think we're gonna do it in the evening drinks food good times a little cocktail party live show i'm sorry i mean i think the date is pretty much where i would say 90 sure that it'll be on july 7th uh it just yeah okay so we can announce that 90 sure let's give us a little bit of margin of error just in case uh something falls through uh because i'll be in be in Toronto for probably four or five days during that time span. So we'll be able to make it work

and we're looking at the evening so people that are working during the day can still attend and be part of it. In Toronto. Yeah. We're leaving out some key details of an event. In Toronto. I'll be in Toronto.

Date, location. Yes. So July 7th in Toronto. More details to come. And Toronto. I'll be in Toronto. Date, location. Yes. So July 7th in Toronto. More details to come. All right. Thanks so much. See you in a few days. Bye-bye. The Canadian Investor Podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.