The Canadian Investor - Impressive Results from Lululemon and Dollarama

Episode Date: April 6, 2023

We start the episode by looking at how the markets have done since the beginning of 2023. Spoiler alert, it’s better than 2022! We then look at the announcement of Alibaba that it will be breaking up its business in different segments. We go over the recent earnings from Dollarama and Lululemon and the announcement that the Roger-Shaw deal is finally closed! Symbols of stocks discussed: RCI-B.TO, LULU, DOL.TO, BABA 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: @BradoCapital Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Sign up to Stratosphere for free 🚀 our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is

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Just a quick reminder, you have nine months to hit your goals and to make 2023 your best year yet. How are you feeling, buddy? I mean, we both had a pretty good quarter, but maybe no counting our chips just yet. Yeah, I mean, I'm feeling, if you're asking me how I'm feeling today, energy-wise, okay, because, you know, baby woke up a few times last night, but for returns, obviously feeling pretty good, much better than last year. But yeah, it's been a pretty, pretty good year so far.

You wouldn't think about it just looking at what happened for, you know, the banking system that we've been hearing for quite a bit. But overall, markets have still performed relatively well. Some sector is better than others, though. If you just read CNBC headlines, you'd think we've lost 50% on the S&P year to date. And y'all know a quarter is too short to measure performance against the benchmark, but at least we're not doing it weekly or daily like the financial media pundits. So we'll take our quarterly benchmarks here. The TSX composite is up 4% on the year. So a little bit of underperformance compared to the S&P 500, which has come back 7.5%. And the NASDAQ 100 up 20%, the very tech heavy NASDAQ 100.

Now, it's a long game for us, but it's nice to see some green. I did 15.5% in the first quarter. You did 21% in the quarter. And the lovely subscribers at joinTCI.com not only support the show there, but they see our portfolio updates and our performance every single month at join TCI.com. Let's get into the show. We're going to talk about Alibaba is breaking up. Lululemon put up quite the monster quarter. Dollarama reported their 97th quarter of the year and then uh hey look rogers and shaw a deal finally yeah i didn't have on my bingo card like ever happening uh they

talk about that yeah five years later after the announcement i mean i i am exaggerating but i think it's been like two years maybe maybe. It's something like that. Like the amount of gray hair that has spawned on people's hair, spawned on people's head since that deal was announced and since it closed must be astounding. It has truly been a while. All right, let's talk about Alibaba. This was a big, big story. They are going to list six of the segments under new operating codes. I believe, as far as I know, I didn't listen to the call and there's not much outside of that.

to the call and there's not much outside of that there is six groups and alibaba ticker baba will still exist as the hold co as the capital allocator as far as i i know and so those segments are cloud i don't know how to say that it starts with a c digital media local consumer services international commerce and china commerce so uh none of them produce any operating profit except for china commerce which is something interesting to to look at yeah i think it's chai niao would be the the correct pronoun or is somewhat correct i mean i'm sure we have some mandarin c-a-i-n-i-a-o so however you say that yeah i think you're you have a pretty good guess there i think yeah i mean i took some mandarin courses but i was a long time ago so i mean i'm a little rusty but uh yeah i mean i think they're probably just trying to unlock value feels like they're pulling a little bit of a brookfield here but uh um overall it seems like the stock reacted pretty well but then again

there's still that clout right where you're dealing with companies based in china and especially as investors in canada or the u.s um there's still some pretty big risks i think involved we're seeing the u.s specifically and china the two world superpowers kind of going at it with uh you know not necessarily sanctions but trade restrictions we saw what's happening with the chips act in the u.s and all the new restrictions for the semiconductors so it you know it may end up being a really good move for investors and good for the business but it just yeah there's just seems like the last time we talked about investing in china there just seems to be even more of a clout over um you know investing in chinese businesses as a whole right now i already thought this was a complicated story to understand.

And now it looks more complicated than ever with all these six groups. And look, the big question for me is where is this cloud business value? This is the one that I'm the most interested in. This is the one that I on an operating income perspective. It lost 5 billion Chinese yuan last year. It's losing around 500 million USD last year, about 300 million in trailing 12 months. I don't know where this gets valued. Like it's really hard to say.

Like they kind of have control of the cloud there in China, especially like, you know, if these companies are just not, you're just not going to be in there and be able to use Google Cloud, GCP, or Azure and AWS. They have this funneled monopoly. So that's interesting. But the margin profile is just not anywhere near an AWS at a 30% operating margin. So I am so curious where the market puts this cloud business. That's what I'm most looking forward to seeing.

Yeah. Yeah. And I mean, look, I think there's just so many competing forces, right? If you just look at the business and you forget the whole CCP and the fact that is a Chinese business, it's one thing, but then you factor in all of the rest. You can't really compare it to US companies that would be similar, some of the big tags, because what kind of premium do they have versus that some of the big tags because you know what kind of premium do they have versus that because of the whole ccp factor and the fact it's a chinese company it's very difficult to value but i guess you know charlie munger and his love for china will will probably be liking that which is something by the way i know we've talked about it before

but that's always been a little bit i don't know i found that weird he tends to pump the uh the ccp quite a bit or the you know just not obviously everything i'd be remiss in saying that but definitely the way they handle certain economic matters uh compared to more democratic countries like the u.s and can Compared to Google Cloud, which is the smallest of the big three cloud providers, Alibaba and USD cloud business is a little less than half of Google's GCP platform. And they're both losing money. But Alibaba's cloud business has had a rapid deceleration in revenue growth. It was doubling year over year into the 50s and just grew last year 4% year over year. So it has come down tremendously. And there's been a slowdown from all the spend on cloud across the board, but none more rapid of a deceleration than this one.

Again, I have no, like flip a coin on where the market puts this. I really am not sure that's going to be really interesting to play. I think watching all of them trade is going to be interesting to play out. And of course, there's the Trina factor. So I don't know what premium multiple they think that they're going to somehow unlock. I don't know if it's going to come to fruition like they might suspect or might hope for. Time will tell. Yeah, exactly. And I think the last thing to consider for investors too is, Exactly. And I think the last thing to consider for investors, too, is, you know, if you compare it to their U.S. counterparts, like the U.S. tech, big tech has taken a pretty significant haircut for good reason. I think growth has, you know, slowed down pretty broadly for the big tech in the U.S. But, you know, it may offer some opportunities, right, without some of the risk associated with a company like Alibaba.

So something to consider. You can probably make a case that there is better growth potential with Alibaba. But I think, you know, when you're looking at this type of business, you have to also look at comparatives in the U.S. and see what the best value is at the end of the day. US and see what the best value is at the end of the day. My only experience with Alibaba was I graduated engineering school. And in Canada, as many people know, if you're not familiar, in Canada, if you graduate from engineering school, you get a Bachelor of Engineering, they give you the iron ring on your pinky. Simone, you can see it here on the call. the iron ring on your pinky. Simone, you can see it here on the call. And my buddy lost it in the first 24 hours of receiving it. He lost it the first 24 hours. She's like, damn, I need to get one. He goes to Alibaba to order one, but you can only get 20 in a pack. So he ordered like 20 fake iron rings for like 11 Canadian with shipping. And I'm pretty sure

they came like three months later. That is the only thing I know about the platform. And that is hilarious. I'll never forget that. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense, and with them, you can buy all North American ETFs, not just a few select ones, all commission-free, so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with

Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. 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. Now we'll move on to what you referred to or alluded to earlier. So Lululemon had their earnings, so Q4 and full year. Here, clearly the market liked the result.

I mean, the stock was up in the teens following the earnings release. This was in big part, of course, before because of Q4 revenues, which increased 30%. And that was higher than expected. Q4 revenues, which increased 30%. And that was higher than expected. I'll mostly look at revenues for the full year. But I will, you know, mention Q4 a little bit here and there. Because clearly, you know, you know, at this point, what the first three quarters were. So usually the market is still even for the full year, they'll be reacting to what happened in the most recent quarter. reacting to what happened in the most recent quarter. So revenues increased 30% to $8.1 billion,

29% for North America, and 35% internationally. Clearly, their expansion internationally will be fueling a lot of growth, but it's impressive that they're still seeing almost as strong growth in North America. I didn't dig into whether, and I should have, but whether it was more the men's segment. I suspect the men's probably increase at a higher percent than the women's sales, at least in North America, because they have been pushing that. Comparable sales increased 25%. Direct-to-consumer sales increased 33%. Direct-to-consumer sales were actually 46% of revenues versus 44% in 2021. So it's actually impressive that it's increasing despite the fact that COVID-19 lockdowns are a

thing of the past now. And in 2021, part of that year still saw some lockdowns. So you can imagine that there was more demand, especially for the website, the direct-to-consumer aspect there. Gross margins decreased 230 basis point to 55.4%. Operating margins decreased close to 500 basis point to 16.4%. Earnings per share was down 11% to $6.68. And the main reason for the earnings per share to be down was because they took a big impairment charge for the mirror acquisition, which was a bit of a head scratcher at the time.

I mean, it was at that time that during the pandemic, right, all companies were trying to get a hand on to that fitness at home. You know, Peloton was at all-time highs, was, you know, at crazy valuation. There was a lot of hype for that. So the impairment charge of that 500 million that they purchased Mirafor, the impairment charge was 442 million. So let's just say that almost all the acquisition has been written off here. What are your thoughts about that, the whole impairment?

From Mirror, I know when I go to the stores, they're really still trying to push it. And they are doing some, I'll say like some innovative ideas. And it seems more useful in terms of being something to bring to the stores in terms of having that cool factor than really being a good competitor to the stay-at-home Pelotons of the world. It has just shown time and time again, it's a terrible business. None of them work. They always become the dryer for your clothes. That meme is real. It exists. People were never just going to be working at home forever from the COVID tailwind. I'm not surprised they're marking down so much of this. So many things were in that era, people overpaid for and extrapolated, pulled forward growth into the future far too much.

So yeah, that's my only thoughts. I will say it's cool. The product is slick. It looks great from what I've seen in the stores, but I don't know how much people actually want it in their homes i'm not sure yeah and i mean i think it's fitness in general so one of my first jobs was actually working in uh like a fitness center on the quebec side over here was like eight i think 17 or 18 and one of the things i noticed early on, I knew it was, you know, pretty prevalent, but the number of people that had gone less than five times to the gym in a full year that had, you know, gotten that full year gym membership in January and then went less than five times

for the full year was crazy high. I don't remember the exact numbers, but you had people actually purchase the membership and never set foot afterwards. So that just kind of gives you an idea of people, you know, getting trying to get into fitness and not continuing. Clearly, when you purchase the equipment's a bit different. And a lot of these equipments have a monthly subscription. So it's kind of easy, way easier than a gym where oftentimes it's longer term, right? It's either three months. You can do by month, but usually it'll be way more expensive. They try to lure you into the longer duration stuff.

And it kind of makes sense that people get fed up with it. Personally, I work out at home all the time. I enjoy it. I have podcasts on, but I think I'm probably the minority, the majority there. I've been working out at home for a while now, and I just moved into my new place. I don't really have a spot for it. So I'm actually in the process of trying to scheme out which gym I'm going to go to nearby. But now that I'm back in the city, I have so many options.

But I actually really like working out at home. If you have the right environment, if it's in the middle of your living room, it's not that good. There needs to be some sort of separation, I feel like. Or else I'm just like, hey, dude, that couch looks pretty fantastic right now. I just posted in the doc here a screenshot from Stratosphere. I broke out women's revenue and men's product revenue. And you can see it's now, you know, it's in a third of the women's, the men's is, and it's growing extremely fast. It's gone from 526 million to almost 2 billion in sales since January of 18 to their end of year, January 23.

So compounding at almost 30% year over year during that timeframe, while the women's product revenue still compounds at almost 23% as well, like nothing to sneeze out there. So dude, this company is just crushing it. I would love to own this stock and Aritzia stock. I just can't because I have rules and I don't buy fashion stocks and I'm an idiot because this thing has just been such an obvious winner. It's been such an obvious winner, Like it's been such an obvious winner, Simone. It's unbelievable how dumb I am that I can't get over the fashion risk, but it is what it is. And I can't, I don't know. I just can't do it. The fashion risk is real. Like Buffett always says, buy stocks that you could, the market was closed for the next 10 years. You know, something you just have to own for the next 10 years because the market's closed.

You can't trade it. And so many of these amazing companies, it doesn't pass. The market closes for 10 years test. And I think it's an important test for me. So, that's the way I feel. so yeah i mean i would argue that it does pass it just because i mean lou lemon has been you know around now for quite some time and you know what people may have called more of a fad they really you know it's in my opinion it's not anymore they've also expanded their lines um i think it's actually starting to enter a category, like very exclusive category of like Nike, for example, where it can actually stand the test of time.

But who knows, right? It's just, you know, I love their clothes. I don't know. That's the problem. Yeah, exactly. And I should know. I'm going to stand up here on the pod, okay? Let me just model everything here for you.

I should know. I should know. You too. I can see you on the screen here we're not sponsored by them by the way but um i mean i love like their work pants for example i love them because you know you can actually move around but they look clean um and i haven't found anything quite comparable but having said that just a few last things here on the results. Free cash flow was down 67%, primarily due to higher inventory levels, which we did talk about that on previous earnings release and capital expenditures were a bit higher. They did repurchase 443 million worth of shares during the year. Inventory levels are actually

improving. That's something I mentioned the last time I was keeping an eye on that. As a shareholder, they improve about 17% from their peak in October. They're still high, but it's trending the right direction. They did say that they were purchasing more to basically be able to fulfill the increased demand. And it looks like it's working out. It was a little bit of a gamble in my opinion, but I'm sure they had strong data to base that on. And they're guiding for 15% growth in sales and earnings per share for 2023.

The earnings per share would be based on the adjusted earnings per share, just because in this case, actually makes more sense because that removes the mirror right down. If not, the EPS growth would probably be around like 30, 35%. So I use the adjusted metric this one time because it just made more sense. And the balance sheet looks flawless aside from the high inventory levels no debt and over 1.1 billion in cash so i'm just looking back here at the numbers so they impaired 442 of the 500 oh yeah yeah that's what i mentioned it's like it's over 80 percent yeah like 85 percent 90 percent around there yeah i was trying to find the men's and women's data when you

when you said that number and now reading it back it's like oh man yeah what they're focusing on is actually now they have like some fitness classes subscription type of things and i they're really trying to focus a bit more on that and less on the actual like mirror hardware um they said that they're not you know they're not giving up on it fully but um they have mentioned in the past that they wouldn't just plow money into the mirror acquisition just to plow money if they do find that it's not working out um you know they're they're fine with that i mean they would prefer that it worked out, but clearly I think now we're seeing a bit of an admission that probably not the best $500 million spent, but not a crazy mistake considering the overall business.

Yeah, the business is doing so well that, oops, it's like, no, we'll give you a pass. Like, oopsie daisy, accidentally blew $500 million when the business is doing this good. That problem gets shelved real quick. And you'll probably wonder, these guys always talk about Lululemon every quarter. And they also always talk about Dollarama every quarter. And that's because it lands in no man's land of earnings season, where it's just, you know, it's just crickets mostly from the markets. It's this nice, calm time, and it's wonderful to talk about Dollarama.

Unless banks are failing left, right, and center in the U.S., but yeah. Banks are failing, and Dollarama reports it's 89th quarter of the year. All right. This was their fourth quarter full year results. And sales was up 16.7%. Comparable same store sales growth of 15.9% for the quarter and 12% year over year. Holy smokes. To really put that number into context, it's basically organic growth of the existing store base with comparable sales growth. Some things they're doing there, but it's a pretty much intellectually honest number of organic growth there.

Operating income was up 21%. Operating margins were up to 23.6%. Earnings per share up 26%. Free cash flow was down 30% with a change in working capital. But you look at that earnings per share number and the fact that they bought back nearly $700 million worth of shares. Now, they opened up again, 65 net new stores, which They open net new 65 stores every single year. In 2020, they had 66. So one more than normal. It's weird. Do you think in 2020, they're like, we accidentally opened one too many stores. What is this why like is this a fluke or is it or is no management have ocd like what is this yeah i mean obviously it's funny that it's the same amount of stores i'm thinking that it's just you know what do you think is manageable from a business perspective it just makes sense they don't want to expand too quickly they've done it before it's easy to do they

probably have uh you know a kind of a plan or you know a game book or whatever gameplay yeah they have a they have a playbook for opening stores 2017 now to 2023. It's just kind of weird that that worked out the way it did. Gross profits, gross margins have really just dramatically increased bring back all the data. It's expanded from like 33% over 10 years ago now to 44, where it seems to be steady state here. And the fact that it's steady state is what's so impressive. All the other retailers fed such cost pressures and they have too, but they are flexing that pricing power, Simo. I've said it. I'll say it again. Those $5 items will turn into $6 items,

will turn into $7 items, will turn into $9 items, will turn into $12 items. It doesn't matter anymore. They're able to do it as long as they're providing the value of being a really ultra low cost retailer. Yeah, and go ahead And it's wonderful business.

Yeah, and I think for me, like the gross margins, it's one thing, but the operating margins, I think that's what's most impressive. The fact that increased 90 basis points for the year, just because we're seeing pretty much

across the board companies reporting, like I would say the vast majority of them are are seeing those operating margins compress and just to see that expanding because you know gross margin is fine but it's typically it's just related to you know your what you're buying and purchasing doesn't include all of the the overhead costs so i think it's just um it's it's a good metric to see that they're actually expanding on that. That's a good point because we've seen operating margins come down just across the board for almost every business. You just have like labor, labor inflation.

That's it. The stores are so lean. It's like one employee, two employees. Yeah. Yeah. And the lines are sometimes a bit long. But I mean, obviously, I was clearly wrong here because I thought inflation would squeeze their margins. I thought it would impact their ability to increase prices because clearly their customers are more likely to be price sensitive. because clearly their customers are more likely to be price sensitive. I think what probably is happening is their customers are still price sensitive,

but what I was wrong about is that they are probably still the best value for a lot of these customers comparing to other alternatives, whether it's grocery stores, whether it's whatever you'd be buying there because they compete with several different other retailers. I'm also assuming that they probably picked up a bunch of new customers that were not going to Dollarama and have started going there in this past year because it's simply a cheaper option as they're getting squeeze and their purchasing power is going down. So people have to shift their habits and this would be a logical habit shift. There's so many items like into this new place.

Now there's so many items that you just kind of got to get when you move in and have most of them. And I just want to get this little organizer. I was at some store last night. I'm going to get this little organizer. And I was like, what am I doing? I can get this for like 75 cents a dollar. I'm out of here. It's just like a perfect use case for the stuff they sell. And it just provides a lot of value for their customers. 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'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. Mr. Belanger, You can finally exhale with this deal. So the deal actually closed yesterday. So we're recording this on Tuesday, closed on Monday this week. So it's finally over. The $20 billion deal closed on Monday following the approval from Ottawa last week. As part of the deal, Rogers slash Shaw, the new entity needed to sell Freedom Mobile to Videotron, the Quebec business, the Quebec-based telecom, which they also did on Monday for $2.85 billion. Ottawa also set several other conditions for the deal to go through with some penalties if these conditions are not met or breached. Pretty significant penalties. Some of these kind of main conditions is

Rogers will need to establish a second headquarter in Calgary and add 3,000 new jobs in Western Canada. They must spend $5.5 billion to expand their 5G coverage, invest $1 billion to connect rural and indigenous community across canada videotron their end they must have plans that are at least 20 cheaper there than its competitors i'm assuming like they have to probably offer some plans that are like that um anyways that's an interesting one and videotron must also spend 150 million to upgrade the freedom mobile network over the next two years so those are some of the conditions there's more than that i mean it's nice to see

this finally done um will it have a big impact on competition clearly ottawa is trying to the federal government is definitely trying to get increased competition there. The reality remains that it's still just a handful of telecom companies in Canada. So I don't know if longer term we'll see that much of a reduction in the prices for our telecom services, whether it's cell phone or internet. But we'll have to see. But it's definitely making Rogers a bigger company going forward. I still don't believe it. You're like, I'm dreaming right now. This thing actually closed. So $20 billion deal, Monday following the approval. What now, I guess, is the big question for this combined entity? It's obviously now a lot bigger. The second headquarters adding 3,000 jobs. There's all these contingencies like, yes, we have to invest here. We have to invest in the rural and indigenous communities. All of that, I think, makes sense. They're just doing what they had to do to make this thing finally close. I guess the big question is, what's next for Rogers in this combined entity? They've had a pretty awkward two years as a company with their management team, their strategy, some PR blunders, to say the least family feuds family feuds like what what's next for this company it's it's interesting to see there needs to be some sort of turnaround

culturally clearly and uh yeah a canadian company i'm rooting for them i hope they can figure that out yeah, exactly. I mean, we'll have to see. I don't intend on putting any money into Rogers anytime soon, but something just to, you know, if anything, it's good for news when there's not earnings coming out. Exactly. What did this family member say to that family member today?

All right, moving on is a reminder. My section is a reminder that last year's return has no correlation with the following year's return. The returns the following year has no statistical correlation to the year before it. You scatter plot them all out, and there is literally no R-squared correlation. And I just said at the top of the show, year to date, the TSX Composite's up 4%, the S&P 7.5%, 20% on the NASDAQ. Last year, for example, the NASDAQ was down 30%. It is always when market participants are capitulated that you find some sort of bottom. And of course, from here, the market can go anywhere in the short term. But it is a reminder that last year's return has no correlation of the following year.

If we look at 1931, the stock market, the S&P 500 lost 44%. It was down 8.6% the next year. Okay, two down years in a row. 2008, you lost 36.6% on the S&P and the market rallied 26% the following year. In 37, you lost 35%. You're up 29 the next year. In 74, you lost 26. You're up 37 the next year. 1930, you had back-to-back downs. As you go through this, 2002, 41, obviously 2020, you had huge rallies after massive corrections. And sometimes you had down years because remember, there is no correlation. I'm not trying to tell a story here. I'm telling you the story that there's no correlation statistically in the data and so when you hear market pundits say oh the market you know

it got crushed last year i'd park cash for a while just know that they are completely full of shit that is my segment yeah yeah i mean it's uh you can't really you know know what the the upcoming year will will give you in terms of just looking at the recent, even the year before, the year before that. I mean, even if you look this year, a lot of the sectors that are doing well this year are the ones that were getting crushed last year. So I think that's, you know, I oftentimes or no, once in a while look at sector SPDR and talk about it on the podcast. And just looking at it now, year to date, it's pretty much that. I mean, communication services and tech got really hit hard last year.

They're both up 21% for the S&P 500. So I think that tells you a lot what you needed to know and kind of adds into what you were saying. Luckily for long-term investors, there is tons of statistical correlation when you zoom out and have a longer time horizon. Like that there's never been a rolling 20 years of negative returns in the stock market. And the fact that after dividends, you've approached 10% annual average annual return. It's just important to remember that the market almost never does that range between 8% and 10%. It almost never achieves that range. Yet on average, you have these huge winners and huge losers. You average out to that number. And it's really important

to remember. I have to look at the data again. I did a segment on it earlier this year in January, where it was like one time since the 70s that the market actually returned somewhere between 8% and 10%. Yet that was the average during the period. So math is funny that way. Uh, so math is funny that way, but, uh, just a reminder, you know, stay the course and, you know, sometimes you have a good year after what seemed helpless last year after everyone makes money. Doesn't matter what you buy in 2020 and 2021 to, oh, wow, this is a lot harder than I thought, you know, picking good businesses matter, uh, knowing fundamentals matter. Having long-term investment horizon matters. And now it's good to see some green again.

Yeah, definitely. It's good for a change. But again, some of the purchases that I've done last year, actually a lot of the purchases I've done last year are doing quite well right now because the market was extremely pessimistic on those names. So something to keep in mind when things look probably the darkest in terms of your portfolio return. If you're lucky enough to have some money to deploy, oftentimes it's one of the best periods to do so. That's right. You buy when there's blood on the streets, as they say. Yeah. Now, you know, let's blood on the streets as they say yeah now uh you know let's talk a little bit about uh saving money now the new first home savings account is actually

live effective april 1st 2023 i know when i logged into quest raid they had like a little pop-up um i think i logged in a couple days ago just saying you know if you want to open an account you can do so i won't go into a full overview of the account because i did do that on episode 237 at the beginning of the year and we'll add a link to the show notes if people want to listen to it the episode is entitled if you're searching it on spot or Apple Podcasts, what not to expect in 2023. Now, the way it works is you or your spouse might not have owned a home as a principal place of residence the year it was open and the preceding four calendar years. It's essentially a mix, a mismatch of an RSP and a TFSA together. Now, I'll just give the main points here,

but there are some nuances. I do recommend that you go back to this episode if you want to know more about this account as a whole. Contributions to the first home savings account, FHSA, will reduce your taxable income, just like an RSP. Income and gains inside the FHSA, as well as withdrawals will are tax free

just like a tfsa you can contribute up to 40 000 over your lifetime and up to eight thousand dollars in any one year including 2023 even though the rules just took effect you can carry up i carry over up to eight thousand dollars of unused annual contribution to use in that later year. You can hold the same types of investment you will hold in your TFSA or RSP. If you don't purchase a home within 15 years of opening the account, then the funds can be transferred penalty free to an RSP or a RIF, which is a retirement income fund. So essentially, like I said, if you use it to purchase a home and you meet the requirements, it's essentially the benefits of an RSP and TFSA altogether. If you open it and you end up not purchasing a home,

you essentially are just contributing to an RSP. That's essentially the gist of this account. It's a good tool if you're looking to purchase a home for the first time. However, I do question how this will help home affordability, especially some of the programs we've seen in the past five years. It just feels like it will probably make entry-level homes even more affordable for people just because it makes having larger down payments and that kind of domino effect. But we'll see. I mean, it's definitely, if I was purchasing a first home or looking to purchase one in the next five to 10 years i would uh definitely open

this kind of account because the the tax benefit is is amazing yet again the canadian government has come out with a vehicle that is quite tax advantageous like the tfsa and put that savings word in they're using s again the first savings account, the tax-free savings account. You know what's going to go in here? Cash. That's what people are going to do because they do that with every account that's called savings. We've been conditioned to think savings is holding big buckets of cash, not investments, not equities that you can compound like you can in a TFSA. What is it? 44% of Canadians are just using their TFSA as just purely cash from the TD data and the

RBC data and every single brokerage data. So roughly half, 44%. So roughly just a little less than half. That's what's going to happen with this one, unfortunately, but I'm glad they're doing something. But yeah, I agree with you. It's just the housing affordability problem runs so much deeper than just, here's some new program. I don't have a good solution for it. So I'm not going to pretend I do. program. I don't have a good solution for it, so I'm not going to pretend I do.

No, no, exactly. And I'm not trying to... Look, I mean, I think for individuals, this is a great tool. The one thing I would probably say, the first home savings account, the name savings account, it's probably a little more appropriate for this one than it would be for TFSA. The main reason being that the timeframe that someone will be buying a home, you know, it has to be done within 15 years of opening that account. So you don't have like, and you know, it's 15 years and investing it's, it's long-term, but it's, you know, it's not super long-term. And for a lot of people, they may be purchasing a home within the next five years, right? So you may not want to put in all in on equities. You may want to have some GICs in there where it actually grows tax-free. You benefit from the tax credit.

I mean, the tax advantage is just, it's crazy. Essentially, you don't pay tax. You know, you get the tax credit, plus you don't pay tax on any gains when you withdraw. So it's yeah i mean if you're looking to buy a first home you'd be crazy not to open that that's my personal opinion i think that that's a fair rebuttal right like if you're saving for a home it's probably it's well based on the rules here it's got to be within 15 years of opening the account or else they get transferred to an RRSP or a RRIF. So, okay, fair enough. Most people think of this account as probably like five years then.

So then, yeah, you don't want to be fully in equities. For a lot of what we'll call the millennials, for lack of a better characterization, for this age group of people who are buying their first home, a lot of them are going to need a long time. They're going to need 10 to 15 years of savings. the case i do think they should be using higher expected return instruments like equities over just strictly cash or or fixed income instruments so which is not financial advice to this what's that which is not financial advice by the way but none of this but i get what you're saying like basically if people especially if people think that the dream of owning a home may be a bit out of reach, then, you know, the only way potentially for them to achieve that dream is to get some capital appreciation. So getting good returns on their investments, because at the end of the day, if they don't get those returns, something like a GIC will not allow them to achieve that goal. So I think that's a good point obviously you know nothing here his financial advice just our opinions on this uh but

i do understand it depends on where people are at um but definitely super interesting would you use it i know you haven't bought a home yeah um i would i mean I have to reread your notes here and fully grasp it. I almost need to do a podcast segment on it so that I force myself to learn the ins and outs of the account. No, I do think it makes a lot of sense. I mean, you have kind of a, basically, the way I'm understanding is a hybrid of an rsp and a tfc it's kind of like the best of both is in in one spot pretty much yeah that's what it is i mean that's my understanding and um yeah now it's uh what's the best of both worlds 8k you can you can contribute up to 40k over your lifetime okay aka over this 15 year period of opening the account or also being transferred and 8k a year including this year even though it didn't really come into effect until april 1st okay so 8k even this oh then then hell yeah i'm gonna i'm gonna max this yeah i would do it yeah that's what i'm saying i would

do it if i was like looking to purchase a home in the next 15 years and i haven't um owned one and uh i think the last four calendar years or my spouse i would be you know i i'd already have it open probably yeah true yeah no thank you simone this is this is amazing because i'm glad you brought this up because you're right i don't think a lot of people are aware of that this is a thing yet i mean it's brand new right they yeah three days ago three days ago you could open one yeah and worst case you know you don't use the money and then you have it for your retirement through RRSPs. That's kind of, yeah. And then you just basically contribute, contributed to an RRSP and got the corresponding tax credit. And then, you know, rolls over to an RRSP.

So you get taxed on it when you withdraw the money because you didn't use it for the intended use. But I mean, that's a pretty good risk, I think, to take, even if you're not 100% sure that you'll buy the home. But again, this is just my opinion. People may have different opinions of that. Honey, we're opening a FHSA tonight. Okay, wonderful. This is great. Thanks so much for listening to the podcast today

today was april 4th this will come out on thursday because it's a thursday release this episode this podcast is twice a week mondays and thursdays we appreciate you coming around if you haven't checked out stratosphere.io a lot of the data data that I'm talking about, the men's versus women's clothing revenue at Lululemon or the cloud revenue from Alibaba, all six segments broken out by revenue and operating income, Dollarama's net new stores. I use the platform a lot for this. There's screenshots galore all over the doc here for you, Simone. That's at stratosphere.io. It's completely free to get started and use. If you do want to join the paid plan, it starts at $29 a month and you can use code TCI for an additional 15% off. We'll see you in a few days.

Take care. 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.