The Canadian Investor - Mailbag - Investment Mistakes, Ford, CDRs, Goodwill and more!

Episode Date: January 6, 2022

In this release of the Canadian Investor Podcast, we answer some listeners' questions on the following topics: Our biggest investment mistakes The future of Ford Motors Our thoughts on High tide  Canadian depositary receipts (CDRs) What to consider when reviewing a mutual fund Amazon removing Visa as a payment option in the UK Index investing vs. holding individual stocks Consumer debt proposal   Tickers of stock discussed: HITI.V, AMZN, F, VDY.TO, VFV.TO,  https://thecanadianinvestorpodcast.com/ Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Stratosphere 🚀 https://www.stratosphereinvesting.com/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

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. Live from the great white north, this is the Canadian investor where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. The Canadian Investor Podcast. Today is December 22nd, 2021.

To round out the end of the year with our last few episodes of the year, it's a good time to get a mailbag episode out where we answer some of your guys' most burning questions. As the listeners, it's a great way for us to engage with you as well. Before we start today's show, I just want to ask a specific favor for my Spotify listeners. If you are on Spotify, now when you go on our show, there's a little rating button. If you can go ahead and smash that five-star rating, we really appreciate it. It is a brand new feature, but it helps us get discovered on the podcast player. Simo, you are obviously biased in this, but you gave us five stars, right?

Last time I checked, it was actually not on my phone so i'll definitely when we're done recording i'll go back to see if they finally pushed it to me but obviously if there is i will give oh you're gonna give us five stars well what you might have to do this is a perfect little little note here is you might have to update it and if you've done the update just close the app and refresh it but if you're a spotify listener we really appreciate you do that. Okay, let's get right into it today. As always, my name is Brayden Dennis, joined by Simon Belanger. With the mailbag today, we got a mix of audio recordings, which by the way, you can go on our website, thecanadianinvestorpodcast.com and do an audio recording there or submit

one to the contact button as well and you can you can do a written one let's fire off immediately here with an audio clip from cole hey braided and simo i was thinking about investing my entire life savings into nikola motors and i was wondering if i could get your opinion on that no i'm just kidding but of Nikola Motors, I was wondering if you could tell us what each of yours worst investment decision that you ever made was and what you learned from it. Well, thank you for your question, Cole. That is a great question. And that's a good segue with Nikola as well with the entire investment, entire life savings. For me, that's a great question because I think everyone has made some mistakes when they're investing. My worst personal investment was in real estate. I bought a house

10 years ago. I bought the house with the intention of converting it to a duplex. It was a bungalow and my goal was to convert the basement to get additional income. I also wanted to renovate the top floor at the same time for myself as my primary dwelling. It sounds like a great plan, right? Well, it wasn't because I bought the house at a good price, but I did make some crucial mistakes. I underestimated what the cost of the renovations would be. I did not have enough of a contingency fund in case of an emergency. I made some poor finishing choices. I should have chosen some more budget conscious finishes.

I didn't really have a great plan to begin with. I'll be very honest about that. And I overestimated my renovation ability, which resulted in additional costs since I had to hire professionals. What ended up happening is that I lost money on my investment. I ended up selling the house a few years later. I still had equity in it, but I ended up losing about $40,000 in that investment with all the money I put into the renovations.

I'm in a great financial situation today, but I definitely took a big hit when that happened. I'm currently looking at potential short-term vacation home rental properties that I could purchase. So the experience has definitely not scared me away from real estate investing, but I did learn some valuable lessons that I would apply to a next investment in real estate. One of the lessons I didn't mention is definitely I would get some professionals to do the work if I start renovating and things like that and budget accordingly just because I think my time is better spent elsewhere. So that's how I see it. Of course, the opportunity has to be right if I do get into real estate again and I'm not in a hurry.

I'm just kind of sitting back looking at opportunities and then ready to p right if I do get into real estate again and I'm not in a hurry. I'm just kind of sitting back looking at opportunities and then ready to pounce if something comes my way. That's an interesting story, right? Because this notion that you just can't lose money on real estate has kind of spread through at least where I live. And it's not really, it's not like the true case, but I'm glad you brought that up. That's an interesting story. And it's interesting that it's also not scaring you away from real estate because obviously, you know, there's lots of ways to make money in real estate. Lots of people have done it. For me with real estate investing and income properties is I just don't want a job, man. I'm not trying to give myself a job. So if I'm going to do real estate, I'm going to do REITs personally. But that's also because I can't use my elbow grease when it comes to actual making money. You can use a lot of that as a way to make money in

real estate. And like you, I'd probably do a pretty crap job on those uh those finishes now as for investment mistakes you know I also gambled my whole life savings in Nikola so I feel you brother no worries they're cool no but for real like I feel like a complete phony I always hear people say you know you're full of shite if you haven't made a big investment mistake. And this has come up time and time again on the mailbag episodes, like what's your big mistake? But to be completely honest with you guys, I primarily held low cost index ETFs for years when I started investing. On my 18th birthday, I had this big plan. I was going to buy these four index ETFs. How boring am I at the age of 18? But it's pretty hard to mess that up. Even as a young kid and complete beginner to financial

markets, in a bull market, buying index ETFs, it was pretty hard for me to mess that up. Today, Tencent is the only stock I have bought that currently trades for less than I purchased it for. Everything else I've sold, you know, hasn't been a noteworthy mistake in the past. Like I've pretty much made money on every stock I've held. And I'm not some genius, but I just willing to hold on to good businesses. I'm going to be investing for a long, long time. And believe me, no one goes undefeated in the stock market. No one goes Floyd Mayweather 40, 40, you know, in the stock market, you know? So believe me, I have, I will have some investment thesis that I just flat out get wrong in the future. I'm going to have a bunch, you know, like we'll have, we'll have tons to document. You're still young, you have time.

Yeah, don't worry. I'll mess something up. Don't worry. My biggest mistakes I've made in the past has always been not pulling the trigger on the best businesses that I have high conviction in because I'm waiting on the sidelines for some arbitrary price point that I'm like, hey, you know, if I can buy this at some better price and then it continues to be better and goes higher. But you know what, you can't own everything. So I'm also not going to beat myself up for that. So I don't really have a particularly great answer for this.

But maybe, actually, hopefully not in the future. I'll have one for you guys. Yeah. And the last thing I wanted to add is something I kind of use uh myself when i looked at at mistakes that i've done in the past is i actually don't call them mistakes i like to call them learning opportunities and you just you just find your participation metal kind of guy aren't you simo you're you're i'm very competitive in sports but uh no it's just a kind of a positive spin. Yeah, exactly. And just to not be too hard on yourself, but also just learning from it and not repeating those mistakes. So that's kind of the approach I take for that. We have another question here from Andrew. He's got a question about automaker Ford. Let's roll that. I bought Ford at under $8 per share. It now floats between 19 and

20. What do you see as the projected future for Ford now that they have reintroduced a dividend? Big fan of the show. Been watching since the beginning. Keep doing your thing. All right, Andrew. First off, thanks for supporting the show. We really appreciate you. All right, Andrew, first off, thanks for supporting the show. We really appreciate you. Ford, as for Ford, ticker F. Ford's been on a roll lately. It's benefiting from multiple expansion because for some reason, the market thinks electric vehicles are somehow these wonderful businesses after assigning a sloppy roughly eight times earnings multiples on automakers for the last few decades. So I'm not really, I'm not really aware of why this, this electric vehicle business is fantastic compared to the regular automakers, but maybe I'm dead wrong on that. Ford is rolling out some nice EV

options. You know, the F-150 electric pickup truck, the F-150 lightning, I'm calling it now. It's going to be a hit. It's beautiful. I like it. This thing is slick, really nicely done from Ford. Now, they've also had some cheeky smart advertising campaigns that I think will probably work well for their new product lines as well. The reality for me is that I don't own the OEM car makers, whether it's GM, Ford, Tesla, Fiat, Chrysler, Volkswagen, Neo, whatever it is. I personally think there is some mania silliness going on in car stocks. Every time you see retail traders blindly piling into these companies off no base, I get really cautious. You know, there's early signs of warning. Like, um, there was the,

we just talked about Nikola. That was a, that was a joke. Uh, Rivian, you know, there's early signs of warning, like there was the, we just talked about Nikola. That was a, that was a joke. Rivian, you know, IPO for over a hundred billion dollars and haven't made a car. This is spooky stuff for me. I've seen stock markets enough and I've seen manias enough to know that that just ain't right. Now, the reality is that Ford stock is up 350% since March of 2020 lows, yet the stock trades for the same price it did in the winter of 1998. Don't believe me? Go look it up. Now, while they navigate an extremely difficult time for auto manufacturers, they can't make cars with chip shortages right now.

Their quarter of sales ending September 21 was roughly $2 billion less than it was the year prior. I hope, as a fan of some of their cars, and I think the F-150 is a legendary truck, but if they execute on their plans and win some major market share, that's great. But for me personally, I have no desire to own this stock. I'm not going to project some share price on the stock for you, but I expect some more of the same. Low margins, high competition, complicated supply chains, capital intensive business, higher input costs across all tiers of suppliers along the way in this inflationary environment. I think that there are easier ideas. That's how I think about it.

Yeah. Yeah. I think you put it well. You know this space better than I do. I think though, for people who want to invest directly in EVs, like traditional car manufacturers might be a good idea to look into for potential value plays, just because Brayden said it. Like there's a lot of hype around like EV specific manufacturers. So, you know, they're all thinking they're going to be the next Tesla. It's the sense I kind of get from them or people invest in them. So that's something to keep in mind that I would say anyone who's looking to invest in EV manufacturers specifically, maybe looking at some of the traditional manufacturers that are investing a lot in EV might be a good opportunity. I just fail to see how they're all of a sudden better businesses than ICE cars. I just don't really see it. And no, you know, there is some additional

optionality that the new technology in these cars can create new lines of business for them. But at the end of the day, I don't, you know, it's still a car and it's still a lot of competition. The margins are low, the supply chain is wildly complicated. And all of a sudden, you know, I think right now Ford's trading at like 27 times trailing 12 months PE. And where has it historically traded like sub 10? So I just don't understand the, you know, bidding it up for basically no reason. And that would give me hesitancy. And so I have no desire to own any of them here. Yeah, I mean, I don't want to own them. I was just kind of playing devil's advocate here as an alternative to some of those EV producers that have not produced any cars just yet.

Yeah, they're paying $100 billion for what is a PowerPoint presentation. That's a bit spooky to me. Even if they have these high, great, grand plans, the execution is very hard. All right. Question here from Jamie. He says, hey guys, I'm new to investing about six months in. I've made some bad buys, but learning lots, especially from your podcast in just a couple of days I've been listening. Was wondering if you could tell me about HITI, ticker H-I-T-I. Thanks. First of all, Simon, before you jump in here, it's only been a couple of days of listening.

So our catalog, this podcast, now has hours upon hours upon hours of content. So keep listening. You might learn even more, but Simon, take it away. Yeah, exactly. So speaking of uh hype markets well this one not that much anymore so high tide is a cannabis retail play that focuses

on manufacturing and distribution of consumption accessories like vaporizers pipes and some brands that also do cbd products for example they also look like they have some retail cannabis store and I'll just kind of premise this like this is just a quick overview with these questions we don't have time to do like extensive research so that's just a quick overview that I'm doing I've talked quite a bit about cannabis retail plays before and this one is a bit different because it seems to focus more on the accessories compared to some of the other ones we talked about.

Currently, Hightide has a market cap of $359 million. The financial data at a glance for the first nine months of the year looks like this. As of July 31st, 2021, they said they had just shy of 28 million in cash and cash equivalent overall revenues have more than doubled year over year 217 million for the first nine months their net loss increased by more than six times to 30 million for the same period they've made a lot of acquisition in past year which has resulted in heavy dilution and this is not specific to this company. You've seen that a lot with pretty much all the cannabis plays. I talked recently about XO that's been essentially the story of XO just dilution dilution and more

dilution. They did a 15 to 1 reverse split in May of 2021, which is never a good thing. When a company does a reverse split, it usually means that they don't really have a choice. Oftentimes, it's because they do not want to get delisted on the exchange because there's a price requirement. Currently, their share price sits at $6. The good news is that they are slightly free cash flow positive for the first nine months of this year but like i said this is not a deep dive personally i'm not a fan of just this overview of this business in general because i just don't see the pricing power that these businesses will have in terms of retail. And even the producers, the cannabis producers, we've seen that there's been incredible price pressure on them.

And we've seen layoffs across the space. So it's nothing really new, but it does show that the pricing power is very low. And I definitely think there's going to be more consolidation in this space in the years to come as the market matures in Canada. And then obviously the big animal down south, more consolidation in this space in the years to come as the market matures in Canada and then obviously the big animal down south keeping an eye whether the US legalizes the cannabis on the

federal level it's still not a done deal it's legalized it's being legalized in a lot of states but until it's legalized on the federal, it doesn't mean much for these cannabis plays. Quick anecdotal story on what is happening in cannabis retail, especially in some of the major city centers in this country, which is a very unfortunate thing has swept across this country during the pandemic, which is small businesses with a retail footprint only have been getting crushed. And many of them have closed their doors for good. This breaks my heart. This is very, very sad. Now, if you walk around Toronto, some of those really nice boutique businesses, they're famously known for being across Queen Street in Toronto, they've all been replaced by weed shops, retail weed plays, all of them. I'm going to just paint a broad stroke and say, they're all now weed shops. How many can we possibly have in one square kilometer? Something's got to give. There's so much competition. It seems like it hit a saturation point in the matter of six months. Now that is anecdotal, but do what you will with that.

I don't have anything more to add beyond that. You mentioned in your question here that you're new to investing and that you've been making some bad buys. So then I'm curious about a cannabis stock where, you know, there's unbelievably great publicly traded businesses out there. Like don't be messing around with some of this goofy stuff. I am genuinely curious what your ideation process is. You know, is it just something that your buddy told you about? Check out this weed stock. Or did you read it on some gimmicky website looking for clicks? Many of them are pay to play too, which is just brutal. I'm not trying to be ruthless here. I'm just genuinely curious about

the ideation phase for stocks to own because newer investors, especially in the past two years, are drawn far out of the risk spectrum. And that concerns me a bit, like new investors coming in and going really far out on the risk spectrum when the first question of investing in and holding great companies is, is the company great? Is it obviously great? And if you can't answer that really quickly, I think you're going to have a bad time long term. long term. Yeah, you know, I think you you put it well, I think it's just important to make sure you do your research, do your due diligence when you find some potentially interesting companies, wherever you read, wherever you look at the information, whether it's companies that Brayden and I talk about on this podcast, whether you find an article or whatnot, you know, or someone that you know, tells you about it, like, like that's fine just make sure that you do your research and you understand the business and you understand if it's a good business or not and i think what braden said is is right you have to make sure you're investing in good business for

the long term like i've said cannabis i mean it's a tricky space to invest in i'll be very honest i think there's going to be some winners, but I think for me, I'd rather watch on the sidelines and just have a look who comes out on top, who's profitable, who has good margins, who potentially has brand loyalty. Right now, it's just not clear for me. It's very unclear. 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. 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. We got another one here. Several listeners have asked us a very similar question and we've touched on it before, but let's touch on it right now, which is, does it make sense for me to invest in CDRs over the actual stock of the company?

I'll take the lead on this one. CDRs are the Canadian depository receipts, and they're available right now for large US stocks by market cap to buy versions of these companies. The ones they have available are companies like Google, Apple, Amazon, Microsoft. Recently, they just added Costco, which is interesting as well. They're continuing to add to them as well. We had Eric Sloan from the Neo Exchange on the podcast not so long ago to break down some of the questions that you guys had and the questions that I had as well. So go ahead and listen to that a few episodes back. But my simple answer is, if you can afford to buy the shares outright and do a process called Norbert's Gambit, which I covered in detail on the podcast a few releases ago, then just buy the actual

shares outright. That's what I would do. If you are in a financial position, we're buying a share of Amazon for what is it now today, like 3,300 USD, and you really want to own Amazon, then that makes sense. And that's what I would do. But not everyone has that much money to just kind of dollar cost average in their portfolio. That's a fair chunk of change. So if you want to own them and buying them in fractional shares makes more sense. If buying full shares of these US companies on one share just seems like a ridiculous amount of money to you, then the CDRs are a good option. Just know

that you are paying that 0.6% fee on them. That being said, I am a big fan of them. I think that it's an interesting and useful innovation for Canadian self-directed investors. Yeah. No, I think that's a great point that you said. The only thing I would add in terms of, you know, whether you can afford them or not, just keep in mind that, you know, diversification is important. So maybe you do have $4,000 USD and you can buy an Amazon share, but if that's all you have, I mean, you're not going to be very well diversified. You're going to be like pretty much all in on Amazon. So that's probably the one thing I would just add to that, to what Brayden said, but everything else I totally agree with. Yeah. Well put because if your PA is five grand and you buy, that's what you got to invest or like,

you know, there goes your entire like TFSA contribution room. That's what you got to invest. There goes your entire TFSA contribution room. That's a good point to bring up. It does bring up additional flexibility in terms of actual portfolio construction. All right. We had a few similar questions from listeners as well about ditching mutual funds. God, I love that. I love these stories. I broke up with my mutual funds. It's always a fascinating story and people getting back on track with their financial lives. This is usually a good start. Simon, do you want to take it away on some input here? Yeah, definitely. And I will say too, before I get started on that question, it's not always easy for people to let those mutual funds go because they may have a personal relationship with the investment advisor that recommended those funds.

So that's something just to keep in mind on. I know some people may need to have some difficult discussions if they want to get out of those mutual funds. So I know it's not always easy, but over the long period of time, it might be worthwhile. Before I get started, I just want to remind people that this is not investment advice, but some of the things I would look at if I had the mutual fund and wanted to figure out if I should keep the mutual fund or get rid of it. The first thing I would look at here is the management expense ratios. So these are the fees associated with the mutual fund. So fees are one thing that you can really control and lower is almost always better. A question to ask yourself

is can I get the similar type of fund at a lower cost? If you're looking at ETFs, you'll find tons of index ETFs that are lower than 10 basis points, so 0.1%. If you're looking at actively managed ETFs or sector-specific ETFs, or even thematic ETFs, you won't have trouble finding one that's under 0.70% in terms of fees or 70 basis point. In my view, anything over 1% is pretty high. The thematic ETFs, they'll tend to be a bit higher in terms of fees, but generally you should be able to find some in the range of like, you know, 40 to 70 basis points. That's my experience. The second thing I want to look at is what is the fund invested in? Is it invested in fixed income, equities, or both? It's not uncommon to have funds of funds, so basically one fund with other funds within it in terms of its holdings. The next question,

as I would ask myself, is what are the returns and how does that compare? So how does the fund compare to a low-cost index ETF, for example, because that's an easy way for someone to invest in the market without being very hands-on, which is why mutual funds can be attractive for people, is it does not require a lot of effort. The S&P 500 is the most common benchmark to use when comparing, but if you want some fixed income exposure, for example, you'll have to factor that in as well. So make sure you compare to a benchmark or an index ETF or an ETF that makes sense if you're comparing the mutual fund.

The last thing is what are you trying to achieve with your investment? is what are you trying to achieve with your investment so if you're in it for a very long term say 10 plus years then having a huge allocation to fixed income probably doesn't make the most sense that's because equities over time will outperform fixed income or bonds if you're close if you're closing in on retirement or might need the fund soon so it might not be retirement but you might need the money soon then something with more fixed income might make more sense because then you'll reduce the volatility and you'd be more in the capital preservation phase so those are all the questions that when you're investing regardless if you're on mutual funds or not it could be good to ask yourself those questions if you have friends or family members that are invested

in mutual funds, these are questions you can just ask them or maybe just kind of probe them for their mutual funds because you also want to be understanding depending where they're coming from. But if you're looking at ditching your mutual funds for the ETF route, a good place to start is BlackRock or Vanguard. They have tons of ETFs at very low fee. Some focus on fixed income, some on equities, some are focused on certain geographies, sectors, themes, and so on. So you have a lot of available fund that you can choose from at very reasonable fees. The BlackRock and Vanguard ETF indexes, like their ETFs that track indices, are very low cost. And I typically say those are the best ones. And don't worry between the two of them.

They're going to be providing like-for-like products. Just go with whatever one has the lower MER at the moment. Now for BlackRock, you'll see it as iShares. So when you see iShares, BlackRock, same company. BlackRock is the company that provides these ETFs. And then the Vanguard ones are by Vanguard. Now, additionally on that note is to answer this exact question is I have assembled model portfolios that I invest my real money into on stratosphereinvesting.com and listeners of the show can get memberships for 15% off using code TCI. But those model portfolios are to answer this question and to help self-directed investors. All right, another question here from Mike. Hi, guys. Love the podcast. Been listening to you guys for a while now. I'm sure you're getting

lots of questions for this show, but would love to hear your thoughts on the latest news between Amazon and Visa. Where do you see the future of payments going and the future of payment processors in general? Simon, you left this one for me, which I can clearly understand as the, you know, continuing to be visible nonstop. The Visa fanboy. I'm a Visa fanboy. Now, thanks, Mike, by the way, as well. Thanks for the question. So for those who are unfamiliar with the story, Amazon said they're going to stop allowing customers to pay with Visa on their platform in the United Kingdom. So again, just to reiterate, this is just in the UK.

For me, and speaking with some smart people on the subject as well, is this feels rather experimental from Amazon and hoping to bring Visa to the negotiation table. There should also be consideration that the fact is that many retailers in the past have big, like big box retailers, and ones that are moving lots of volume, like an Amazon have gone exclusive with one of the credit networks in the past, and got better take rates from them by going exclusive. And this helps them expand their margins, like this helps the retailer expand their margins. The reality is that there's going to be changes in payments and there's going to be increased competition. This is why I prefer to own both

card networks, Visa and MasterCard equally. I have really no hard opinion on which one's going to outpace the other in terms of market share moving forward. What I do know is that the market that they have a duopoly in is quite beautiful. And I want to own that market. And of course, there's Amex in there as well, but it's a completely different business. Amex is actually operating as a bank. To remind folks who listen to the podcast, Visa or MasterCard do not lend any money. They do not take on credit risk. They just act as the technology between merchants and customers. That's what they're in the business of doing. So they take a very small fraction of that. Now you don't maintain

the profitability and obscene free cashflow margins without introducing competition. Look at the historical margins on these companies. They're far, far and above, from a margin perspective, the best businesses ever. Now, the problem that competitors face when they want a piece of this juicy margins is that, holy, wow, it's really hard to disrupt these companies. I can't really get customers to pay any other way, and I can't introduce new ways. It's very difficult to do. So it's been a long year of negative sentiment on payments. When I believe they will continue to do more and more volume on the payment rails in the future, that is Visa and MasterCard. Not to mention, you know, their take rate is only 14

basis points on the high end, like 12 to 14 basis points is very normal for transactions. And Simon, not to mention, they are very nicely immune from inflationary pressures. They have a take rate on what goes through the payment networks. They do not have, they're really, really immune and defensible against inflationary pressures from that. Yeah, I think they I would say resistance if we're seeing like extremely high inflation, they'll probably be impacted, but not as much as other businesses. The one thing I wanted to add, as you were talking, I saw that apparently Amazon is offering money to its UK users if they're deleting their Visa card now. Really? Yeah, just like removing it from their payment option, removing it from their payment

option. So it sounds like Amazon's really taking a hard line here, which is very interesting, and not surprising from Amazon at the same time. And in terms of like the future of payment, I mean, I'll agree with Braden here, it'll be very hard to disrupt them. I think that the only thing that could really disrupt them is cryptocurrency that the only thing that could really disrupt them is cryptocurrency and how quickly that that space is evolving i really don't know where it's gonna go and i have exposure to all of it so i'm kind of covered whichever way it goes and keep in mind like visa and mastercard are also investing heavily in cryptocurrency so it's not like they're staying on the sidelines and not doing anything.

So just food for thought here. But yeah, I don't think, you know, they're going away anytime soon. That's for sure. Yeah. And this just, I see these things happen and I just go, hmm, you know, they're going, company X is going exclusive with MasterCard. And then I just look at my portfolio,

them equally weighted and I go, okay, fine. 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 questtrade.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. Okay, question here from Rob. Is it okay if I just buy the ETFs VFV and VDY that would make up the majority of my investment portfolio? Currently, I have those ETFs making up most of my portfolio along with some stocks, but I would like to reduce the number of holdings, brackets 25, and not have to watch the market earnings reports and so on. So what Rob is asking is he's saying, can I just own these two ETFs? These are Canadian TSX listings by Vanguard. VFV tracks the s&p 500 and vdy correct me if i'm wrong i'm pretty sure is the high yield index for for vanguard yeah okay so that one's pretty common as well so now vdy does that is that just canadian or is that us ones as well yeah so it's

the vanguard foot c canadian high dividend yield index Index ETF. So it holds the telcos and the banks and energy, basically. I'm going to go on a limb and say that. And he's basically saying, okay, I want to go full index ETF because I don't want to track these holdings anymore. Do you want to take this one? I have a few thoughts here, but I know you have some notes to share. Yeah, definitely. Yeah, so first of all, Rob, I love this question

because it shows that you're self-aware. Yes, a lot of our listeners have specific companies in their portfolio, Braden and I do as well. But to me, the question, and I've always said that of owning index funds, individual stocks, or a mix of both is really personal. it's all about personally it's all about having sufficient time to dedicate to each business that I own and I've said that time and time again the more time I have to stay on top of the businesses the more businesses I can own obviously I think there's a limit there as well we've talked about that my personal kind of max max max would be 25 but my sweet spot is usually around like 15 to 20 and probably would prefer getting it down to closer to 15 but that's just a personal thing for me it can also evolve over time right so now I have 18 different old things but it's very possible that I do reduce it over time and allocate more money into index funds I enjoy researching company but spending time with my wife, staying active, relaxing and those are all important things to me and there's only 24 hours in a day,

70s a week and I also have a regular job. So all this to say that there's really nothing wrong with having a portfolio with only index fund. There's nothing wrong with having a portfolio of just individual companies and there's nothing wrong with having a mix of just individual companies and there's nothing wrong with having a mix of both it all depends on you do you enjoy doing the research do you have time to do that research and are you beating the market with your individual holdings those i think are the three main things in my opinion that you should be asking yourself when you're trying to decide what best strategy applies to you. And for VFV and VDY specifically, I mean, I think, you know, just owning VFV is perfectly fine, which is the S&P 500 index ETF. If someone only had that, I think that's perfectly fine. And the two that you're

saying and then some stocks, I think that's perfectly fine as well. Yeah, well put. I mean, the you have lots of options here. And that's kind of the best part about this is you do have lots of options. If it was me and I'm looking at this, I would think, okay, you're talking about a Canadian high yield dividend index ETF. I worry that that kind of heavily underperforms. I know that you have probably a pretty nice dividend yield on that given, you know, we have the banks and telcos and energy that's going to give you lots of income on that. And I don't know anything about your financial situation. And of course, this is not financial advice. Given that, I do worry that VDY heavily underperforms the index because it's

these kind of legacy income plays. And so I think that VFV will probably long-term majorly outperform that. Now in the short term, anything can happen, but I think long-term that the VFV S&P 500 index ETF will massively underperform it. Now, what I do know is that some people, and I love this, I back this, is just own the Vanguard S&P 500 or the Vanguard or BlackRock S&P US total market index. They own that and then they just do nothing else. They're 100% of their stock portfolio is in one ETF. Now you might go, oh my God, my entire stock portfolio into one holding. Let's not forget, there are hundreds of companies inside of that one ETF. So you are more, if you own just one ETF, that Vanguard S&P 500 index ETF, you are instantly more diversified than me. With one purchase, you are instantly more diversified than me because I own 18 individual securities. I believe highly in them, but I, you know what I

mean? Like you're owning 500 of them. So, you know, you can do that and you can have a hybrid approach where you have, you know, your index ETFs and then some specific stocks that you want to own. And I know that lots of people do that and it makes sense for a lot of people. I do. That's what you do. Yeah, exactly. And I think the one thing I would, I would say with what you mentioned, we also don't know is waiting, right? So he's mentioned VDY, VFV and stocks. But, you know, for all we know, you might have 1% in VDY and, you know, 70% in VFV and the rest in stocks, right? So it's hard to say, depending, like, we just don't know the weighting. But yeah, I think it's a great question, because it just shows that you're self-aware. I think that's the most important thing. Yeah. If you're just like, you know, screw it. I'm an index investor.

I'm going to sleep fine at night. Yeah. Go for it. I love it. If you want to do individual stock research, then go to GetStockMarket.com. All right. Question here from Paul. I just did a consumer.

You love that. You love that. I just did a consumer. This is from Paul. You love that. You love that. I just did a consumer. This is from Paul. I just did a consumer proposal for my debts and started with the payments. I have extra free cash now. Besides putting money into my savings, I was wondering if I should pay off the proposal sooner or invest or both. Thank you. So thanks for the question, Paul. So I had to do quite a bit of research because I did not know what a consumer proposal for debt was. I had to research. Obviously, I wanted to provide some good information with answering the question. So for people who don't know, a consumer proposal is when you have too much debt and essentially you cannot pay all of

your outstanding debt. So it's a legally binding process that is administered by a licensed insolvency trustee, LIT. At a high level, there is a proposal made to creditors to repay part of the debt. If it's not accepted by the creditors, then you can resubmit a new proposal or the last option would be to declare bankruptcy. If you don't have an emergency fund, so to answer your question, if you don't have an emergency fund, you might want to consider building an emergency fund in case something unforeseen happens. In terms of paying it off quicker, based on my research, this looks like it's a zero interest payment plan. The problem though is it affects your credit very badly. So in other words, the quicker you pay it off, the quicker your credit should improve. I'm not an expert. Like I said, when it comes to this,

I would recommend consulting with a professional to fully understand what the impact on your credit is and what limitations it may have on your life in general, right? So for those who are in this situation where they are thinking of paying off a loan, so not this exact situation here, assuming that the loan is not impacting your credit negatively, then the biggest consideration in my opinion should be interest on the loan and your potential returns that you might get if you paid the loan quicker versus investing that money. So for example, say I have a 8% fixed interest loan. In that situation, I would personally pay my loan off as fast as I can because that's essentially a guaranteed 8% return. Even if I think I can achieve 10% on my investment, I just don't think

2% spread here is worth the risk when I have a potential 8% guarantee return by paying off my loan faster. I'm there with you at that number. Of course, it can make sense to invest money and carry debt loads. Of course, that makes sense. But at an 8% fixed loan, I mean, what's the goal beyond that, right? Like, I guess you can try to get 12, 15% in the market, but that's, you're a very, very good investor if you're doing that consistently. And that's not to say you aren't, but I mean, like what Simon said, you can just lock in 8%, seems pretty good to me. Yeah, yeah, exactly. And I think that's just, you know, it's a case by case for everyone. But, you know, there's a big difference between a 1% or 2% loan and one

that's 8%. And that's really what I wanted to highlight because when you have a guaranteed return from a high interest loan, it oftentimes make a lot of sense to pay it off. Question here from Chessie. Hi, guys. I love your podcast. Thanks, Chessie. Question here from Chessie. Hi guys. I love your podcast. Thanks Chessie. You are doing so much for so many. Oh, it goes on. Thank you so much. I do have a question. Can you explain how companies come up with their goodwill valuation on their balance sheet? It seems pretty subjective and it sure seems like some companies inflate it in order to make their total assets look better. sure seems like some companies inflate it in order to make their total assets look better. Is there a standing accounting methodology used to calculate goodwill or is it as arbitrary as it seems? Thank you again for all that you do. Chessie, this was a really good question.

Yeah, yeah. Great question, Chessie. So in theory, goodwill is the premium paid by a company versus the fair market value of the company. The fair market value of the company would be established by figuring out what the fair market value of the assets are and then subtracting that from the fair market value of liabilities. From the research I did, there's different approaches to calculating goodwill amongst accountants. What you're saying is right though, calculations for Goodwill are very subjective. There doesn't seem to be really a wide consensus when it comes to how to calculate it. That probably doesn't help you much, right? And personally, the way I look at Goodwill is I really take it with a grain of salt.

Some companies may say that the Goodwill value is justified because the brand recognition associated with it. And that might be true, but it's very hard to quantify, right, Braden? Like a lot of time, like you may be able to, you know, it's a strong brand, but how can you really put a value on it? I think that's usually the issue. And there's really not a golden rule. What do you think about that part, right? This is a gray area for sure. And it's always a tricky one for me as a numbers person where you have subjective line items on financial statements, which are supposed to be very non-subjective. These are the numbers. And then there's this weird wonky number, which is a gray area and very subjective

which is called goodwill now there are rules around what can and cannot be included and an auditor will will question them a good auditor will anyways but i am agree i agree with you i mean it's there's no right or wrong answer. It's not black or white, which is confusing when it sits in a line of numbers, which are very black and white. Yeah, no, exactly. And the last thing I wanted to add here is that a company can decide that goodwill on the balance sheet is no longer accurate or appropriate because the assets that was associated with that goodwill are no longer they no longer have that same market value that can happen when the related assets are producing

reduced cash flow than when they were originally acquired a good example of that was a few years ago when berkshire wrote off 15.4 billion of goodwill impairment expenses related to their investment in craft Heinz. Berkshire was essentially saying that the assets associated with the investment they did in Kraft Heinz had diminished in value because of lower cash flow production. So even as Braden would say, the goat can't make a mistake in investment in Kraft Heinz. I think he came out and said it was not one of their best decisions right after the fact. It wasn't their finest moment, especially because Kraft Heinz lost a

lot of value of its publicly traded stock very quickly after, which was poor timing. No, exactly. But that just goes to show that it is tricky even for a great investor like Warren Buffett to even, I'm sure he struggles with it himself too, how to really evaluate goodwill on a balance sheet. Yeah. Like I said, this is a tricky one, especially as a numbered person like me. Now, goodwill is found in a company's non-current assets on their balance sheet. This is where you're going to find that goodwill line item. And just checking to see if it's out of whack is probably a decent idea.

I'm not going to lie. It's not something I really even look at. I'd be lying to say if I always check a company's goodwill. But that being said, you can check to see if it's out of whack. For instance, a company just for my example here, I looked up for basically no other reason that I was, other than I was on their statements earlier today, looking up intuitive surgical. Intuitive surgical is a company that absolutely without question definitely has some customer loyalty and brand recognition. Now, customer loyalty and brand recognition are a big part of goodwill. You know, from surgeons, their customers, the customers of Intuitive Surgical, surgeons, they will say, oh, we have lots of loyalty for this robotic surgery. I ain't going back.

So if we look at Intuitive Surgical, they have $336 million on their balance sheet for Goodwill. Now that might seem like a lot of money, $336 million. But that is only roughly 7% today of non-current assets and only 3% of total assets. Now, again, very subjective. If I look at a company like Intuitive Surgical and they were to tell me straight up, we think that the value of our total assets, 3% of it is in our customer loyalty and brand recognition, I'm two thumbs up. I

believe that. I actually, I'm trying to find companies that their goodwill should probably be a lot more than what is stated on their balance sheet. I'm like, hell, this is such a good company. Give me 10% of their total assets. And I'll still say it's good because it's such a good company and they have customer loyalty and brand recognition, which is what defines goodwill. So I'm good with it there, but that's an example of looking at their statements. I see $336 million on their balance sheet for goodwill, but it's only 3% of total assets. So hopefully that helps a little bit.

Yeah, unfortunately, I think that probably the biggest takeaway here is you'll have to use your judgment when it comes to goodwill. A hundred percent. It is, if it's not black and white, it requires judgment. Yeah. Good old gray zone. It's totally a gray area. All right.

That does it. No more questions, right? Beautiful. Beautiful. If we didn't answer your question, it's still in the queue. Hopefully we can get to it in the future. As you can imagine, we have lots, or we were just kind of directly responding to you right in email and we try to we try to do that at a reasonably quick rate even though we we got a couple things on our plate these days

okay thank you so much for listening we appreciate you very much happy holidays merry christmas stay safe out there another thing here is for the holidays, you know, in the new year, investors are excited to get their portfolio in a place that they're very, they're very happy with, you know, starting the new year, they're getting their portfolio right. I believe in that. I back that. So to get access to our in-house research and model portfolios, use code TCI for 15% off. Get yourself something nice for the holidays. And that's the Stratosphere membership. Simone, anything else to add here? We saw lots of questions over recently. Yeah, no, we just appreciate all the questions. questions like you said we try to answer as many

as we can we won't be able to answer all of them but we do try to respond to all the emails sometimes it takes a bit of time because we have a lot of stuff going on but we do appreciate all the questions we get fair enough okay perfect and uh you know for these questions just a reminder that is thecanadianinvestorpodcast.com. That is our website. That's where you can find all our show notes. You can search for episodes. You can leave us voice messages like I had just mentioned and support the show in many

other ways. We'll see you in a few days. Peace. 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.