The Canadian Investor - Investing mistakes and investing checklist

Episode Date: August 31, 2020

In this episode of the Canadian Investor Podcast, we talk about some of the mistakes we’ve made when investing and what we’ve learned from those mistakes. We go through our investing checklist and what we look for before starting a position in a company.--- 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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Hey Brayden. Hey yo. So today we're going to be talking about a few different subjects. Some of the mistakes we did as beginning investors while we were starting to learn about investing in general. And then we'll talk about our own investing processes and some of the things that we look at when we were considering investing into a company. But before we get started, Brayden, what do you think about the stock splits of Tesla and Apple, which seems to just have propelled those two stocks to new heights that probably no one anticipated?

I thought stock splits weren't supposed to provide value to investors. Yeah, we can talk about apple later because it's actually part of one of my investing mistakes um but my god i made an instagram post on my like stratosphere investing instagram about how stock splits don't mean anything um and now i legitimately had people comment being like, are you stupid? You don't understand that. I had legit haters on my page because apparently stock splits mean that the stocks goes up tenfold in two weeks. So here we are. Yeah. here we are yeah i mean in theory it's not supposed to provide anything because the

easiest way to look at it is you look at it from the perspective that let's take a pizza right so you have six slices you have a large pizza and if you have the same pizza and divide into you know split in 12 pieces it's still the exact same, which is essentially what a stock split is. But I mean, you can probably make an argument that it does create value for shareholders just based on the results, I guess. And the actually the argument I think makes the most sense for me is probably a bit less in the States, but a more in canada is it it does make the stock more accessible to investors so if you take apple for example that's trading about like 500 for one share if you split it five four to one well it'll give people the opportunity to buy

and at a much cheaper price in the hundreds right so i guess that could create more demand for the stock and help boost it but that's probably the only argument i can have about that i will die on the hill that it means literally nothing i i hate this narrative going around sorry simon what you just said about about it providing access for more people to be able to buy the shares. That doesn't actually hold true in the States when they can buy fractional shares on their brokerage accounts. So you could buy half a share of Apple. half a share of Apple. It's just us trying to come up with some narrative for sometimes in the short term, the stock market is very confusing and it doesn't make any sense in the short term. But in the long term, these things will all shake out. I mean, I've been very vocal as I think Tesla is a great company, but I mean, I won't be

shorting the thing anytime soon, but oh man, I really want to put a put option on it these days. Oh my God. Yeah. I mean, I would probably, I tend to agree with that. The only thing I would say about what you just mentioned is not all brokers offer that option in the States. So I think it may have a small impact, but again, I think for me, if it does have an impact, it's not all brokers offer that option in the States. So I think it may have a small impact. But again, I think for me, if it does have an impact, it's obviously just short term. I think you're right in terms of long term, it'll just even out. But short term, it may create a bit more demand just because of increased volume. Yeah, sure thing.

So today we're going to talk about a more prudent investing process because a lot of retail investors in this environment in 2020 seem to be throwing money at the stock market like it's some sort of gambling device. If you're making money in the short term, sure. Looks like you're having a little bit of fun. But for long-term investors who are looking for a solid strategy and how to build a high-quality portfolio of some companies, however diversified you want to be, that's up to you. I believe in picking quality, quality companies and just kind of being concentrated in them. But yeah, so simon when

when you are going okay you're like i'm going to deploy some cash walk me through step one through step you actually pull the trigger in your brokerage account to finding companies to then execution of opening a position okay uh yeah so there there's quite a few things I'll look at. So just to get started, I'll get my ideas, first of all, to get a company on my radar. I mean, it really depends. So I can listen to another podcast and potentially hear someone talk about that company. I could see in an article, I could find it from a screen. So there's all different ways of finding companies. And I mean, whichever way you find it, it doesn't really matter. Just make

sure you do your due diligence on the company. And that's what I do. So I'll try to find a way to, you know, if I don't know about a company, how the hell can I invest in it? So that's what I'll do. Once I've found a company that I find at least intriguing to some level, I'll make sure that I listen whenever it's possible to at least three annual conference calls. So I've said that quite a few times, but I do like to hear management talk. And usually you'll hear at least a CFO and the CEO on those calls. And especially the question period from the analysts. I always like to hear that because a lot of the times they'll have stupid questions, but a lot of the time too, they'll have some really good questions. And it's interesting

how management reacts and just the tone of voice and things like that, that you can't really get from just reading an annual report. The second thing I want to make sure is, and the annual conference call does help for that, but definitely the annual report, but you can look up the company, Google it, the investor relations page. You can probably even watch a YouTube video on the company or the products they sell but that comes down to making sure that I understand the business at least at a high level not going to pretend like I'm not an environmental engineer for example that's your cube radar that would be me but yeah I am not an expert in everything but I make sure that I at least I understand the business at a high level. And one

of the things I look for is that the company has a strong position in whatever the industry is, or a moat, as Warren Buffett would say. The third thing is what account I'm looking to purchase that company in. So we've talked about the different type of accounts before, but the two main ones that I use currently, it's an RRSP and a TFSA. So for the most part, my rules of thumb is if I have a dividend payer that's from Canada listed on the TSX, that will be a candidate for my TFSA. the TSX, that will be a candidate for my TFSA. If it's a growth company, whether it's US, Canada, it all depends which one I want to go into, but I can have that in either in my TFSA or RSP.

But if it is a dividend payer from the US, I will tend to have that in my RSP because there is no withholding taxes in that account and there are in my TFSA. Obviously there's other type of accounts, but that's always a good thing to ask. And we've talked about taxes on ETFs before where they're located. So that's another thing you'll have to consider whether you want to put that ETF in your RRSP or TFSA. And then I'll dig into the financial statements. Whenever possible, again I'll look at five years of financial statement. I say whenever possible because it's possible the company was listed in the past few years. One of the things I want to see is an increase in sales. I definitely want to see an increase in sale, but at the same

time, I look at it too in terms of, is the trend going up? So if you have an off year where maybe it stays stable, it doesn't increase much, but overall it is going up, that's fine by my book. The second thing I'll look at is stable or increasing gross margins and Brayden explained really well why that's so important to have some solid gross margins for business in last week's episode manageable debt either short manageable debt both short and long term so obviously you can look at the balance sheets to see what's going on with their debt, if they have low debt, if it's also when the debt is maturing is very important as well. And short term, if they have enough funds to pay those interest payments, and long term as

well. If the industry has tailwinds going forward, so I'm not going to invest in a coal company, for example, because I think coal has absolutely no future, but also for environmental reason, I think it's just terrible to be investing in those type of companies. So I want companies that have tailwinds. And if a company is a dividend payer, and I say if because not all my stocks that I own are dividend payers. So I want to make sure the dividend is stable or increasing, ideally increasing.

And I want a track record of a dividend payment of five years or more. I want to see a manageable payout ratio when compared to the free cash flow. And I do say manageable because like we've explained before, the payout ratio is not the same depending on the industry they're in. And a low payout ratio as a utility will be different than a low payout ratio for a tech company that would have a dividend. And then dividend policy from management. So a lot of companies like management will actually come out and say, okay, for the next five years, our target is to increase our dividend from, let's say, 7% to 10% every year. And we think that our free cash flow will be supporting that. So most dividend payers will have a dividend policy. If they don't have it stipulated word

for word in their financial statement their annual reports are on their website you can always reach out to their investor relations team and oftentimes they'll be able to give that to you so those are kind of in a nutshell what I will be looking at there's other things I look at but those are some amongst the the most important things 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 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. go ahead, blossom social in the app store, and I'll see you there. I like all of those things. And I know we're quite aligned on most of those things. And a lot of those things that we're looking for in terms of metrics. So if any of those metrics were confusing to you guys, refer to last week's episode, we did a deep dive on a lot of these ratios going back to basics. So episode we did a deep dive on a lot of these ratios going back to basics so i'm pretty similar i do start the top of my funnel if you will quite analytical with a screener so i'll screen out

what i think is just complete garbage um and i'll actually screen out some commodity type industries as well because i do not buy commoditized products. I don't think those are quality compounders long term. So I'll screen, I'll screen again. And a quick plug for Stratosphere 2, the screener is almost done. We are so close, guys. I'll keep you posted. And so then from there, once I have a list of companies that I have high conviction on, like super high conviction on, which will not be many, by the way, I'm not talking about 20 stocks, I'm talking about like three or four or less, one or two. Typically, I move that into my watch list. And that doesn't mean that I'm buying the stock. It's not like I'm jumping to buy the stock at open the next day.

A stock sits on my watch list sometimes for over a year as I fully understand the business and make sure my thesis is correct. I read an interesting thing on Twitter yesterday about his long thread about how you do not have to rush to buy stocks. And if it's a true 10 bagger, meaning the stock multiplies 10 times and you missed the first bag, like that's okay. If you took that time to get your conviction, your story right, your thesis right, that's okay. you write your thesis right, that's okay. So then once I have the list of those quality companies that I think, I tried to organize all my thoughts in a graphic. And we posted that on our Twitter, by the way. And what I call them as the stratosphere compounders, just for me to

organize my thoughts and what I think companies that are going to be compounded for a long time consist of. So I'll kind of fire off some of the things that are some qualities that exist in these businesses. So first of all, once I've screened through them, I'm looking to see if they're a leader or disruptor in a global secular growth trend. This is similar to the tailwinds you were just talking about, Simon. I'm looking to see if they have superior reinvestment opportunity, which can be characterized in return on invested capital, but also can be more qualitative than quantitative at times. I want to see that they have proven top line sales growth, as you mentioned, and free cash flow growth rates are high. And then I'm looking to pay a fair price for the business relative to those qualities and growth rates. If they have strong, durable pricing power, and they're non commoditized, we're going to see those gross margins increase over time. And that's kind of telling of their pricing power. Gross margins increase over time, and that's kind of telling of their pricing power.

And then lastly, which I do screen for as well, is the conservative capital structure so that they have a safe balance sheet. They're not taking too much debt on to grow, those kinds of things. Some other desired qualities that are not must, but I do like in certain businesses is that they're capital light not asset heavy businesses they have high gross margins network effects they have opportunity for growth both organically and through acquisitions um they're easily understood um and and if i'm this goes back to the watch list if i think it's a great company, but I couldn't tell you exactly everything about the business

and my proper thesis, I could explain it to a 10-year-old, then this doesn't fit into the category for me of easily understood. So you got to be within your circle of competence there. I like transparent management, a bottleneck business model, which we could do a whole entire episode on. But think of, you know, the toll road type businesses that have a bottleneck in their industry, and that provides competitive advantages and is kind of their moat. And then I want to see that the management team is properly incentivized if it's founder-led that's even more favorable i'm a big fan of founder-led

led companies they have a lot of stake in the game they can build the culture correctly i think over a really long period of time, that culture and the people, the management team of the business, the business model combined, those are what are going to drive 10-year results, even if you paid a pretty bad price for it in the short term. So that's kind of my thesis on what I think are high-quality compounders for a long time.

It starts with that screener process because I am a numbers guy. I like to screen out some of the garbage, screen out some industries that I either don't understand or don't think are high quality business models in there. And that's kind of it, man. It's a patient, patient game.

Yeah, no, definitely well put. And I think what most people realize is we have some similar things. And there are some things we do differently as well. So it's good to know because investing, it's not, you know, it doesn't have to be the same for everyone. Everyone can have a slightly different process. And it's also important to know you won't always get them right. So you'll, you know, you'll have some winners, you'll have some losers, but as long as your winners outweigh your losers, and that's good, that's important. And one last thing that I do that I didn't mention, I actually keep a Google or I would say, yeah, Google sheet with all the companies I invest i invested and i have my investment thesis and i'll go back to it every year just to make sure that that's still the case and it's just a good thing

to to remind me why i invested that in that business but also as the thesis changer remained the same yeah that's that's that's interesting too the one thing that I also forgot to say is that I love doing boots on the ground research, including asking family friends that are in that industry to give me their hot take on that company's position in the marketplace. As you know, Simon, as I disclosed in the last episode, I've been pretty bullish on not only SaaS, but infrastructure. And one company that fits both bills is Autodesk, the software provider of AutoCAD and Revit. And I have lots of friends in engineering, obviously.

So I'm asking them all like, is there competition in this industry? Or do they just have a complete stranglehold on the industry? All the research that I've come back with is Autodesk is the player in town. I like doing that. It provides me some more conviction in terms of, are they truly dominant in that industry, and is there other disruptors that I might not even know about yet? So, uh, I love doing that kind of research. Um, and, and like you said, we will

make mistakes, but your winners are going to carry your portfolio. It is not uncommon for one, two companies to drive almost all of the results in an investment portfolio. That's normal. That happens all the time. Yeah, yeah, exactly. Definitely. And as long as you have a consistent approach, and when you make mistakes, you know, just see it as a learning opportunity that's probably the the best tip i can give anyone is you realize you've made a mistake okay you can't go back it is what it is just make sure you learn from it and you don't repeat in the future speaking of mistakes simon fire off we've both prepared three investing mistakes both real life examples and maybe things that were wrong with our thesis as we were beginner investors per se. Rattle off your first whoopsie moment, Simon.

Yeah. So the first one, I mean, I talked about it, I think on one of our very first episodes when our audio was terrible, but in case you guys- Back in the day when we were peasants yeah in 2019 pre-covid yeah um so my first one is uh kind of FOMO so fear of missing out but also investing based on someone else's advice without doing my own due diligence so So the example I can give is Tahira Diamonds. So T-A-H-E-R-A. So feel free to Google it. There's actually a CBC article on it on how they delisted from the Toronto Stock Exchange in 2009, if I remember correctly. But just goes to show that I invested in this company because one of my friend's mom was telling me that they had found diamonds in a mine in northern Canada.

And, you know, I was just going to really hit it off because they found that mine. Well, yes, they found diamonds in a mine, but they were actually a junior explorer. So they found the diamonds, but they still hadn't started taking them out. And with all the infrastructure and the investments that it requires. Well, you know, the company ended up going bankrupt and obviously I lost all of my money. But, you know, I learned from that it was a lot of money for me at the time I was 18 or 19. But I'm glad I did it early on because now I invest much larger sums of money. And I'm definitely happy I made that mistakes early on because now I'll actually, you know,

I'll do my due diligence when investing in a company. So that is that's the first thing. Why am I shocked that a junior mining exploration company would make it on this list. How common is that? Yeah, my buddy knows that this company just found gold or whatever. Insert material X that they just found. And it's like, oh my God. If I had just a penny for every time one of those whisper stocks came into my inbox, I would be a rich man.

Hey, I've never made the mistake again, so I learned from it. There you go. I'm glad to hear it. So what's your first one, Brayden? My first one, and I prefaced earlier that we'd talk about it, is actually a stock that I did not invest in. I don't want to be that guy who's like, of course, the biggest company in the world. Oh, you didn't buy it? Sure, whatever.

Apple just had $2 trillion in market cap, over $500 a share. And my mom was asking me what a good U.S. company was to buy. And of course, Apple was still a mega large cap at the time, trading at $90 per share. And I had this thesis, and I was going to buy it in my own investment portfolio after doing all this digging. I had this thesis that their services business was going to take off this, this, this ecosystem that Apple was developing was so sticky. And I was a student at the time. And every single person in the class had a MacBook and their phone and didn't

listen to the prof. They just had this like, unbelievably sticky ecosystem that they were developing and everyone had to start playing with Apple when it came to gaming on the mobile, when it came to applications. Everyone had to play in Apple sandbox. And the reason that I didn't pull the trigger was because I had just seen such a transition of devices in the electronic hardware space being the opposite of sticky. I had this flip phone. And then in the next year I had a slide phone. And then, you know, after that was another flip phone. And then it was like the age of BlackBerry's being so sticky and everyone could have thought BlackBerry was going to be, you know, Canada's darling. And it was, and it was at one time, but Apple was different. Um, And I had so much conviction and I just didn't pull the trigger. I had so much conviction in how sticky this ecosystem is. And at the time Apple was, had explosive earnings per share growth and was trading at less than 11 times earnings.

It was like 10.5 times earnings. Now Apple is approaching like 40 times earnings. I think it's like 38 today. So I recognize that there would be not only that this is a great company, but there is so much multiple expansion built into the thesis. And that's what has driven among their extreme share buybacks with the amount of cash they're spinning off. Share buybacks in this multiple expansion

has had this incredible run into now what Apple is today. And I think Apple's a buy today, even at $2 trillion in market cap. So maybe there's still time. I mean, this company has just such a sticky ecosystem. And I'm kicking myself for not pulling the trigger. There's only a few times where you're going to have extreme conviction on companies. For me, it's payments. Right now, I am like payments, payments, payments.

I think that is the conviction I am just set on of going to be quality compounders in the future. And that was one of them. And I didn't pull the trigger, and here I am. Apple hits $2 trillion in market cap, and I have never owned a position. Yeah, I mean, I'm a happy shareholder. What can I say?

How long have you had Apple? I've had Apple, I think, for two and a half, three years now. So I know it's performed pretty well for that amount of time for sure. Pretty well. Listen to you, eh? Pretty well. It's done all right. I'm not complaining.

But again, same thesis as you. I don't think it's not all right i'm not i'm not complaining but again uh same same thesis as you i don't think it's gonna stop anytime soon and i'm just gonna i'm holding that uh just it's gonna stay in my portfolio for a long long time unless something takes a really unpredicted turn fair enough um so i'll go with my second one. Yeah. So the second one, I have kind of a bigger one here. So being too focused on value, traditional value investing, or waiting too long to pull the trigger. So it, I guess, goes a little to say what ties into what you just said with Apple as well. But when I after I made that mistake from investing into hero diamonds, I really got into researching what good investors did. So I got an interest into Warren Buffett, I read the intelligent investor, and then I was

really focused on value investing. The problem with value investing is I find, you know, you can miss out on a lot of industries that may not be a good value, but are really booming. So right now, you know, we're looking at, you just said payment industry, but whether you're looking at that, you're looking at renewable energy, you're looking at data and everything being in the cloud. energy, you're looking at data and everything being in the cloud. A lot of those companies that are in those sectors do not look good in terms of a value investor with traditional metrics. And I did that mistake a whole lot early on. And now I think I've learned from it. And I do have a mixed approach now. Obviously, I like to get a good deal, but I definitely focus more on getting a really good business at a fair value. And sometimes that fair value will be a bit more

expensive if it's growing extremely quickly. And if it is growing extremely quickly and I find the valuation rich, but I really, really love the business. I mean, oftentimes what I'll do is I'll dollar cost average. I'll start a small position, make sure it's a small portion of my portfolio and slowly add to it. That way I don't miss out on those multi-baggers that I could potentially have that are major disruptors or that have huge tailwinds. So that's one of the bigger mistakes, in my opinion, that I've made, probably more than the first one, to be honest.

Hey, I think a lot of us are with you on that. I think that's largely shared by a lot of investors over the last decade, is that you can ignore some of the best companies that are going to change the world because of the valuation. And this is not saying go pay crazy prices for stocks. in a meaningful way looks overvalued as hell at least once. Probably more, at least once in their story. So I'm with you on that, man. And you are not alone.

This is really common. Brayden, does that mean I should buy Tesla? We need to ban that stock from this podcast. Yeah, exactly. We need to talk about it. For two weeks. We sound like we're just jealous at this point, and that's because I am. 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 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. I have a similar type, a similar type investing thesis problem that I went through and I am so adamant and vocal about telling people not to do this because it's so so silly and especially Canadians because of the TSX index is so heavily weighted into banking and energy which pay fat dividends, people are so drawn to dividend yields. And I don't know why, other than they look at it and they're looking at this company and thinking,

wow, I can get a nice 9% yield on my money every year as income. And that is their thesis, start, stop, buy. That was the entire investing decision was look, I can get this 9% yield every year for just holding this energy stock. And sure, there might be merits to that as an income investor. Sure. But that should never, ever be the sole reason you invest in a company. I'll give you some numbers here. Obviously, the S&P is now, again, higher than it was pre-COVID, which is kind of insane, but that's the truth. And the dividend aristocrats index is down on the year. So you've been horrendously underperforming by trying to chase dividend yields on slow growth or zero growth companies that have headwinds, not tailwinds. And that is a huge mistake. And one that is made so often by

beginners is trying to chase dividend yield. Hey, look, I like getting paid dividends. Simon does too. Who doesn't like getting paid cash for being a shareholder. But if you start and finish your investment thesis based on that income, that is not going to be a good strategy for you. And you will. I'm so confident you will underperform the market over the next 20 years if that's how people invest. And again, this is a very, very common mistake that is made by beginners. I made it.

And I want everyone to not have the only reason they buy a stock is the fat, juicy dividend yield. Man, we should have talked about these before the podcast. That was my third one. Oh, no, it's all good. It's all good. Yeah, I mean, one of my of my mistakes too was to focus on dividend stocks not necessarily just a tsx but dividend in general without looking enough at companies that did not pay a dividend because i think you just the problem with doing this is you

weed out a lot of awesome companies just because they're not paying in dividend. So I totally agree with you. And I don't know if it's because we're Canadian, but a lot of Canadians seem to be really focused on that as well. So I think it was good that you brought it. So aside from that, I'll have to think of a new one. So do you want to go with your third one? And I'll try to come up with a new one? You hit the drawing board, but, or we can just continue to harp on that. Do not chase current dividend yield. All right. So another one that, uh, I've been lucky that I don't have a bunch of examples of just like, I lost all my money on the stock because I just don't have any of those.

I'm really, really patient and i don't buy stocks with like throwing at a dartboard so i'm like a grandpa as an 18 year old when i opened my tfsa account and didn't have any of those whisper stocks but what i have made mistakes on is making some pretty bold assumptions that a five-year five-year revenue growth trend, like compounded annual growth rate of X percent, is just going to magically continue forward with no real good reason, no real good thesis beyond, hey, look, it's been growing revenues at 15% a year.

That's how fast this company grows, like it's law. And that's not necessarily true, especially if it's an acquisition machine and they're making, you know, as they make more acquisitions, the growth is going to slow because the base is bigger, for one. And some of that organic growth on another company just might not persist if they've already captured a lot of their total addressable market. So obviously you want to find companies that are growing. But it is a very difficult assumption to make that X percent every year, five-year average is going to be just what it is into the future. Now, that is a good

sign. And I screen for companies on past growth because that means they have had proven results. However, moving forward, you have to have some real conviction or idea of why you think that is going to persist. And that is the whole investment thesis that you're going to be making is that not only can this growth continue or potentially even accelerate. So I made that mistake a lot. I still make it when I'm looking at ideas. So I'm curious to see if you have potentially done that or still do that and your thoughts on that one. Yeah, I mean, I think it's probably human nature to make that mistake. But again, I think I like to try to, especially when I find that the, let's say even management is making these predictions going forward. I always try to see if I can lower those expectations a little bit and still see if I'm interested in the company.

But yeah, it's a mistake I've made as well. It's very easy to just project the current situation and the future. Whether, you know, you can make that mistakes on both sides as well you can look at a company that might be great but then you're looking at it now and like whoa it's not going well like it's probably going to keep going you know down in the gutter going forward and then vice versa like you just said if you look at the company it's been growing at five ten10% compound annual growth rate over the past 5-10 years. It's really easy to project that in the future. I think the main takeaway for me from this is really making sure you have a bit of a margin of safety.

So, you know, just dial back a bit those expectations, even if you think there's a good shot that they will actually achieve them. And then tell yourself, you know, is this still a good investment, even if, you know, they grow slightly slower than I anticipated? Yeah. And if it is truly a quality long term compound or you're going to hold in your portfolio for a long time, you'll actually probably underestimate the growth rate. If it's a crap company and you're looking for a turnaround, like a lot of deep value investors are, you're probably not going to be conservative enough. So that just emphasizes why you buy quality because your assumptions on both sides of that coin versus a high quality versus low quality company, you're probably going to be under,

you're probably gonna be too conservative for the high quality and not conservative enough for the crap company. Yeah. Well put. I guess I do have a last one now. Maybe a bit early on, I made that mistake. Although now I don't think I do. I will look at it that way, but just had to get an idea of where it's going. So looking and making your sole decision of investing based on a graphic. So yes, graphics are fun. It's nice looking at whatever company and you know whether it's going up or you know you think it's hitting a low or whatnot but at the end of the day the graph of a

company it can give you a good idea historically just as a snapshot but it should not be your thesis for investment you should do a thorough investment. Everyone's going through a look at the graph, don't get me wrong, but I hear of a lot of people making investment based on just, you know, the graph of a company. So what are your thoughts on that, Brayden? I feel like I know where you're going, but... Do you mean like the performance share price chart or are you talking about...

Yeah, you're talking about like their actual performance chart. Yeah, yeah, exactly. Just the actual, you know, the graph you just see right up when you go on the out finance for example oh god yeah that i i love the uh peter lynch he does some like uh speech i couldn't tell you where it was from it's it's it's it's in the last century and he goes people do so much research when they're gonna go buy some dishwasher they like try to find coupons they ask their friends about this one they do research online like they do so much research

to find out about this this dishwasher if it's going to be good. And then they hear some stock tip, and they run out the door to call their broker to invest half their life savings in this stock without doing any research at all. And that is the same concept of seeing that something is going up and just solely investing based strictly on that i mean that is that is that is kind of 101 i i actually try to come up with my entire investment thesis without even looking at the chart i almost always cheat and do but

but um yeah i mean that's that's a very, very common mistake. Or even like, you know, trying to buy the dip, right? Just looking at the graph and like, oh, my God, like it's down 80%. Let's say cruises, for example. It's easy to be like, oh, man, if it just gets back at, you know, it just doubles here. It doesn't even have to go to like half of the price it was previously at and i'll double my money um it's easy to think that way and look at the graph and going ahead and thinking you'll you know you're super smart but when you start digging into it

and you realize that those cruise ships are not moving um yeah maybe it won't go back to the price it was before and like on the opposite side of that is the amount of people who do not invest in a company because it has gone up is completely bonkers to my brain like oh the stock has gone up already X percent. I can't buy it now. It's like, what are you talking about? Of course, good companies are going to be reaching all-time highs. If they didn't, then they would never be going up. It would never increase in value. And I know we've harped on that about, you know, not buying a company because it's at an all time high is completely stupid. And then this goes back full circle to what I was mentioning

before about being patient with something on your watch list is if it is going to be that true 10 bagger company that creates wealth. If you miss the first bag, that's okay. So if you look at it and you finally have complete conviction about this company, and that was 100% ago in stock performance on the chart, and you go, ah, no. And you miss the next nine bags, that's on you that's a complete that's that's that's a really that's a good one sign because that goes both ways if you're investing in the chart or choosing not to because it's gone up oh boy that's that's trouble yeah exactly so i think uh i mean i

think we've gone down gone gone on long enough about those. Is there anything else you wanted to say before we wrap up and let people go? No, sir. I was just going to say thanks to everyone listening to the podcast. The reviews have been good, minus a couple people that really like gold, don't like us talking badly about gold. But I really appreciate everyone listening. Simon, I know you share that as well. And I get lots of emails from you guys. We appreciate all the support. All you have to do is leave us a little review and we truly appreciate

that. If you're not subscribed on the app you're listening to right now, go ahead and do that. It really helps us. It helps us grow. It helps us grow the pod. It helps us produce more content for you guys. So we just really appreciate everyone listening. The Canadian investor is not to be taken as investment advice.

Braden or Simone may own securities mentioned on this podcast. Always make sure to do your own research and due diligence before making investment decisions.