The Canadian Investor - Modern Portfolio Theory and US Spot Bitcoin ETFs Beat Expectations

Episode Date: March 4, 2024

Welcome back to another insightful episode of the Canadian Investor Podcast with Simon and Braden. In this week's episode, our hosts delve into the intricacies of Modern Portfolio Theory (MPT), exploring its relevance in today's dynamic investment landscape. They unravel the complexities of businesses navigating competing incentives among stakeholders, shedding light on key strategies for sustainable growth and profitability. As the conversation evolves, Simon and Braden shift their focus to a hot topic in the investment world: Spot Bitcoin ETFs. With seven weeks since their launch, they analyze the performance of these ETFs, dissecting fund flows and assets under management to determine whether they've lived up to the hype or fallen short of expectations. Randy Cohen Blog on 60/40 performance  The Block Bitcoin Flow Charts Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Sign up for Finchat.io for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. The Canadian Investor Podcast. Welcome into the show. My name is Brayden Dennis, as always joined by the extraordinary Simon Belanger. Today, we're talking flywheels. We're talking modern portfolio theory. And then we have a special update on a launch that was widely talked about in financial markets. So make sure you tuned in

to stay on the pod for that. Simone, I'm having one of those days where running a startup is just really hard. And some days you're just like, man, why did I sign up for this? Like some days, man, I'm having one of those days, but I wanted to, the reason I'm telling you that is because the podcast is just like the one I always come back to of like how much I love doing this. Like this is the one project where I just, I've never felt super, super burnt out, maybe only a handful of times. And I just love this project.

So I hope the listeners appreciate that. Yeah. I mean, it's not easy to run a podcast for so long, but there's definitely a lot less moving parts that I can imagine with Finchad.ios. There's definitely a lot less moving parts that I can imagine with Finchad.ios. Probably with 1% of the moving parts for the podcast compared to that. Yeah, and that's why it's so beautiful.

You know, like when you run a company, there's so much beauty and simplicity in this podcast. It is a business. As many of you know, you guys hear the ads, you guys, you know, you know, it's a sponsored show, but it's just, there's such little moving parts and it's just beautiful. Like it just works. But on that, here's a quick plug for FinChat. You know, all that said, we did just launch earnings call audio, earnings updates and updated UI, investor day presentation, slide decks, press releases, company reports. So you can actually listen to the earnings call right after the call concludes right on the FinChat platform. So I know I was sending you screenshots, but it's live now.

Yeah, no. And I texted you. I was actually a few days before because we've said it before, invested in FinChat as well but i'm not like you know involved on day-to-day basis at all so a couple days before you texted me i'm like oh it'd be nice if it was like all you know slide decks audio and all the financials right in one spot because i always found myself like you know as good as finchat was i still had to go on the ir page and just like listen to the audio or using other apps that cater just to that yeah that's right and every investor relations page is different uh as investors know like especially once you leave like north america like it's once you go kind of markets, dude, there's no standardization on

investor relations pages and it can be a bit of a nightmare. So we make that a little bit easier. All right. So you got our first topic of the day, modern portfolio theory, MPT. And I'm pumped to hear what you have to say. I certainly will have my hot takes here and there, but let's just get into it. Yeah, it's funny because as I was researching that, I'm also listening to an audio book that goes over a lot of MPT and the drawbacks and downsides of it.

There's definitely some good things that came out of it and I just kind of figured, I don't think we ever talked about that on the podcast maybe we mentioned it quickly but i cannot i recall i mean it's been what 360 episodes close to that so maybe we did but i i just can't remember there are certainly aspects of it that we've talked about in extensive detail, but maybe not like in its origins and how it's came to be. Yeah, and that's exactly it. And the audiobook I'm listening to, and when I'm done listening to it, I'll definitely do a summary and I can talk about it on the podcast. But what's kind of nice is this author is looking at it on a historical basis. So it gives a lot of historical context, which I really like to hear.

Now, MPT, the reason I mentioned that, because it did come after, you know, it came about after the crash of the 1929 and then the 1930s. Obviously, that followed with the Depression and investing really kind of, you know, putting some numbers into investing and having more of a, I'm not sure how to put that, but of a system for investing that came about. I think Benjamin Graham, his first edition of the Intelligent Investor must have been in like the 1930s, 1940s, around there. You remember when that was? That sounds right. I'm going to look it up.

Yeah, it sounds about right. First published. That sounds about right. I know it's 49. Okay, that's actually later than it. 49, okay. I thought it was like a year or two after the war ended. Okay, but yeah, still in the 40s.

But that's about the time period where there was a lot of progress in investing and a lot of people putting forward kind of theories to, you know, help people invest and not just people, institutions as well. So it started all the way back 1952 with Harry Markowitz in an essay for which he later won the Nobel Prize in Economic Sciences. In short, the idea behind MPT is to maximize your potential returns given a certain level of risk. And that's really important.

It's really about maximizing returns, but it's always based on what you're comfortable in terms of risk. And based on this, if you have two portfolios with expected returns of 7%, you should be choosing the one with the lower risk profile, therefore maximizing your returns on a risk-adjusted basis. And the idea is to construct a diversified portfolio around assets that are negatively correlated to one another, which essentially means assets that move in opposite directions. So if one goes up, the other one goes down, and vice versa. So that will balance the portfolio. And that's the diversification idea behind it. In terms of an example, a classic example of the of MPT is a concept of the good old 60-40 stock bond portfolio.

The idea is that when stocks are down, there's going to be a flight to safety to bonds, especially I, especially, I would say, typically treasuries, US treasuries, which will mitigate the drop in stocks. And according to MPT, on a risk-adjusted basis, there is a case to be made that the 60-40 portfolio has performed better than a traditional just stock portfolio. Not in absolute terms, obviously total returns will have been better if you put money in the S&P 500, for example, but on a risk adjusted basis, it has provided better return. And one of the measures for that is the Sharpe ratio, which compares the return of assets compared to the risk free rate. So US treasuries, for example, while factoring in the volatility of the asset

and to be clear again it doesn't mean that it's outperform on a total return basis just on a risk adjusted basis and i found this blog that was done by a professor and i'll put the link in the show notes um i just don't have it open to me. But essentially, he studied and got some data from 1961 to 2021. And according to the data that he got is that the stock portfolio, yes, did indeed perform better in annualized return. But on a risk adjusted basis, the 6040 portfolio performed better. But in total returns, obviously the stock portfolio has performed better. Before I go on, anything you wanted to add here? The only thing I think really worth discussing on this topic around the difference in the performance and what they're calling risk risk-adjusted returns. And it comes down to how you define risk. Because if you define risk as

volatility, okay, that's fine. I'll circle back to that. I define risk as losing money. Risk to me is losing permanent loss of capital, poor decisions, destruction of value. Companies you buy become intrinsically less value down the road and you eventually lose money on them. When the investment business discusses risk around volatility, beta, sharp ratios, they're defining it as risk because it's really a risk to their business.

If you have a lot of volatility and your clients don't like it, They're defining it as risk because it's really a risk to their business. If you have a lot of volatility and your clients don't like it, guess what? It is a risk that they will move their money somewhere else. And so it's just always important to think about how people are defining risk around like price action versus like real actual risk. And stocks have outperformed the 60-40 on the annualized return. So it's just, you know, people throw in little words, right? It's like outperformed on a risk adjusted basis. And it's like, well, in your little definition, sure. Like I can bend stats any way. I can even make stuff up for my narrative, right? And that's kind of the problem with

these kinds of things i i think it has merit and i understand it but you know and i'm sure you're getting to that here but maybe that's a a little appetizer for for yeah well that's exactly what my next point would be but it's all good i didn't read. I didn't mean to steal your thunder. No, that's all good. And that's one of the big issues and criticism with MPT is that it focuses on variance to define risk or volatility. These are all synonyms. So how much an asset will actually move in price and the more volatile it is, like you mentioned, the more risky they will consider the asset. Now, the problem with that, it's a very, very narrow view of risk. There's, you know, we've talked about it. There's all different kinds of risk before, but using volatility, I think is not my, I agree with you.

It's not the correct way of doing it. In my view, that's because I think it's much better to look at downside risk. So that's another way that you said, right? Like of permanent loss of capital. So that's your downside risk. I think that's a way better way of measuring risk, but that's not what they do. Because the problem with asset volatility too, is if you're trying to build a portfolio with using that as a risk definition is, you know, does do you need to adjust that? Because one of the things that's interesting is typically people view bonds as, you know, less risky, right?

Like in the finance community, bonds will be viewed as less risky. Well, the issue and there's a chart that our joint TCI listeners will be able to see. But for those listening, feel free to go on, you know, just on the Google machine and just type in the MOVE index. So it's M-O-V-E. And you can look at kind of the last five years since 2018. And basically the MOVE index is just to measure bond volatility. And you'll see that volatility has actually like shot up

specifically in the last like four years or so three three three years let's say where it was much lower the previous three four years and now it's much higher so you know you'd have to constantly adjust i guess your risk profile based on that but i haven't seen a lot of people that would go with these kind of 60-40 portfolios saying that bonds have become more volatile in the last three years. Although the data is clear, they have become a lot more volatile. That's right. I mean, there's no perfect asset. There's no asset that exists that checks every single boxes.

Unless you found that infinite money glitch, hit me up. Still looking for it. Yeah. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no

annual RRSP or TFSA account fees. They have an award winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized,

hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. One of the solutions, at least, is what was put forward is what's called post-MPT, so postmodern portfolio theory. And this addresses the volatility

criticism. It's not very widespread. It's kind of hard to find a lot of information on it. But instead of using volatility, it uses downside risk. So what we were talking about, aside from that, it seems to be very similar to MPT. And some might argue, like I said before, that the 60-40 portfolio over the last 30 years is an example that MPG does work very well. It's hard to disagree. I mean, it's done quite well. Even when you compare it to stocks, it's pretty close. But the problem is that going in that period of time, we literally have seen interest rates gone, decreased steadily since the 1990s and 2022 is a prime example here of stocks and bonds

performing pretty poorly like anyone holding a 60 40 portfolio i can guarantee you they did not do well in 2022 whether they did better than someone holding stocks i guess it depends on the kind of stocks a person was holding i think the returns were probably quite similar as the S&P 500 without having the data right in front of me. But that's a good example that it's not always easy to get assets that are negatively correlated. And sometimes some assets will be negatively correlated until they aren't anymore. And that's something to, you know, to keep in mind. And going forward, who knows what interest rates will be like. So it'll be hard to see whether bonds will perform well or not. I mean, even if central banks reduce rates, that's only the short end of the curve. The market tends to dictate what the long run of the curve is, obviously, barring any massive

quantitative easing or yield curve control. Both of these are just ways where the central banks will intervene and buy assets, typically government bonds. So what it'll do is it'll increase the demand for those bonds, therefore increase the price of the bonds and lower the yield. And yield curve control is basically a more, let's say, aggressive way of doing that and making sure that the yield stays within a very tight target. But that, again, will probably cause some longer term macroeconomic issues with the markets without going into too much detail for that today. So I guess my to sum it up here, NPT, is it good or bad? I think there's some good

and bad things to take away from it. Diversifying assets class is not a bad idea, but I think it's important to identify which asset class will do best. Even if you try to build a portfolio around assets that have historically been negatively correlated, like I just mentioned, correlation can change over time, depending on market dynamics. And again, the measure of risk that they use, I think it's flawed in a very big way. Measuring risk with volatility, it just doesn't make sense in my brain. I don't know why the finance industry has used it for so long. I think your answer is probably the right one for

that because it's much easier for them to retain clients as they don't have big drawdowns. That's right. I mean, say you're managing a bunch of family money, like you have, say, 40 families, million dollar plus investment required. You run like a long only type family office. Your clients, you're in like probably the wealth protection. You're going to have a mix of like young families with money to older families to like straight up seniors that you're holding onto their money that is going to eventually go and get passed down. These are the clients that are in these types of funds. And the last thing that they want is to get their statement and see volatility because they don't know. They could be holding the next big, the next NVIDIA here in 2024.

And it's been bumpy the whole way, right right and so the incentives drive everything in our world and that's that can explain a lot of the the metrics that are used you know like the numbers that are used always correlate with the incentive or outcome that people are looking for on a long enough time horizon that's just literally how how this works so yeah no i got no other better explanation like no no i mean i don't think i don't either so and i think it's interesting to talk about it because that's mpt is the basis of you know a lot of investments even when you think about insurance companies how they invest their money with these premiums that they collect and so on, it's all around you. You probably

interacted with it in one form or another without even knowing it. Let's talk about businesses with competing incentives. So I have this note where I have two brainstorming methods for the podcast. I have this note on my phone or I text Simone. That's one of the two. I was in Miami for a conference a couple of weeks ago for FinChat and I was walking on the beach after the conference, taking a solo long walk on the beach. And this is of course what I'm thinking about because I'm a complete nerd. So I text Simone, I'm like, dude, let's do a topic on businesses with competing incentives. There are many businesses we're kind of going back and forth on that meet this criteria.

And I'm going to talk about this, but I want to set the stage for what great looks like first, and then talk about the opposite of this, which is business with competing incentives. So the business model with great incentives has what most people call a flywheel. A flywheel is a mechanical device specifically designed to efficiently store rotational energy in the form of kinetic energy. The idea here is that when the flywheel resists changes in speed and momentum by their moment of inertia, which is like I in this formula, meaning that if they're in motion, they're difficult to slow. Like spin bikes work like this. Traditional spin bikes work on a flywheel. And it's a very old piece of technology that goes way, way back to ancient times. And it's an important concept in business

because it means just exactly that, is that there's a positive feedback loop, aka flywheel, that creates a company with so much inertia that it becomes difficult for competitors to stop it. And it also becomes a snowball because you have this positive feedback loop. You have compounding of the outcome that you're looking for. And there's many examples of flywheels, particularly well-known around network effects. Think of like Visa, more merchants who accept the cards, create more customers who hold the cards, which creates more merchants to want to have the cards and so on and so forth. You get this like amazing network effect. Or Uber and Airbnb, any social network. With Airbnb, think about like you have this two-sided network effect

flywheel. More hosts create more options, which creates a better product for travelers, which creates more usage, more traffic on Airbnb, which then drives more hosts to sign up because there's a market opportunity, so on and so forth. You get this nice feedback loop. And I like to think about a flywheel of compounding value that actually flows back to customers. And this is not like a, it's kind of like a network effect, but it's more like economies of scale. And this is what I'm going to focus on for this segment. And then also the reverse of it. So easy examples of this, Simone, you can see on the doc here. This is the famed flywheel illustration that Jeff Bezos put on one of his annual letters. I forget what year that annual letter is, but you

can just Google it in two seconds. Just Google Amazon flywheel and you'll see his little sketch that he put on one of the Amazon annual reports. And essentially what it is, it's two loops. There's more traffic, creates more sellers, creates more selection, better customer experience. So there's that flywheel. And then intertwined with that, you have more sellers, lower cost structure, lower prices, better customer experience, more traffic. So it works together in this like kind of almost double feedback loop. But the idea here roughly is that you drive a better customer experience, you know, that customer obsession model that Jeff Bezos has talked about for so many years, which drives more traffic, drives more sellers, lower cost structure, lower prices, more selection, that all feeds back into the customer experience experience and then the loop starts again. So this is a flywheel that creates what

people refer to as economies of scale. What that really means is more sales volume creates lower prices, creates more customers, and now we're back to more sales volume. Costco has probably the most well-known version of this. They charge like, you know, 12% gross margins, but everything's fed back to customers in the form of savings. I've talked about it extensively on this podcast. So I'll try to throw another example here. Netflix is another one that benefits from this example. More customers, more money for creating hit content and a better product, a better library and hopefully better content.

You can argue about that on Netflix. Leads to more customers. So overall, you come up with an ideal situation that I think we can agree on that flywheels compound value. But these types of flywheels compound value back to stakeholders of the company, customers, and shareholders. You get this customer base that's very sticky and it grows it. And then, you know, overall, these are good businesses for society. They're equal for stakeholders. What you're getting here is a lot of people benefiting from economies of scale. So any other examples before I get to the opposite of this, which is businesses we have

with competing incentives? No, I mean, not on top of my head. I'm sure I could probably think of a few if I had a few minutes, but not on top of my head right now. Fair enough. I mean, the Costco one's the most famous yeah an etsy maybe kind of a platform like that a lot of platforms are like that right where you get kind of a lot of sellers people that join in and then you know it reinforces each other

yeah every two-sided network marketplace they can benefit from network effects and a flywheel and also economies of scale and a flywheel. Usually, if they go hand in hand, you end up with these mega scale type companies. So what's the opposite? There's a subset of businesses that I have great hesitation to own as a shareholder because they have conflicting incentives. So let's work through some examples. Match Group comes first to mind. Their flagship assets being Tinder and Hinge, the dating apps. Hinge's slogan is literally, quote, designed to be deleted. Meaning if you have success in the relationship on Hinge, you stop becoming either a free user or a paid customer on their paid premium paid subscriptions, which they have a lot of, they disclose them on their queues in case. And so Tinder even has this like 500 a month extreme paid product

for if you're extra desperate, I guess. The reality is- You're extra desperate, okay. They should rename that product to extra desperate. This one's 500 a month. So there's a competing incentive for the company and what the company and their customers are hoping to achieve, right? Like maybe not Tinder, because I think everyone's just like permanently hooking up

and maybe not. But let's look at the more serious ones like Match Group. They own all of them. Yeah. Hinge, Design to be Deleted. What are the other ones? I guess Match.com is the one I was thinking of. Dude, there's a ton.

If you go on. Yeah, there's so many. If you go on Match.com's IR, you can see all of their brands. And they have all the niche ones. IR, you can see all of their brands. And they have all the niche ones. Like for every type of like race, religion, subcategory, sub-niche group, like there's one for you and they own it. And if they don't own it, they buy it within the next, you know, however long.

Like I did use some dating apps when I was in my younger days and single, but I say, like, I don't know. I am a little bit old-fashioned I do like meeting you know girls in person and just interacting like that and especially now you know they especially now as a married man I love I'm just kidding no no but especially like I find because like dating apps are so prevalent like it's actually like a nice surprise if you just kind of randomly start interacting with someone you're interested in just you know at a coffee shop or on the street it's

like oh my god like i'm actually talking to someone without going through an app yeah it's almost like it's like ballsy now like you know i think dude there's all these like i don't know if you notice this but now when you like tap a phone like together have you seen this if you tap your iphone together you like exchange contact information oh yeah have you seen this now like i've had it a couple times where i've like my phone's like touched like a buddies or something and they're like whoa what is that like your phone vibrates which which is weird because we already have each other's contact info like this happened at lunch on the weekend. Anyways, dude, there's all these like features now where it's like Apple's like trying to make it easier for y'all to meet in person.

So just shoot for it. My young kings, just go out there, shoot your shot. As long as you have an iPhone. That's right. Yeah. Yeah. You won't be able to find a date with an Android. So there's a competing incentive there, right? Like the customer lifetime value instantly drops off a cliff

unless you're paying 500 a month for Tinder to just travel the world and be single. Wise. Wise is a London stock exchange company. It's a FinTech. It's a service I'm a huge fan of. Personally, I use it for my business for converting currencies, moving money. No, this is not sponsored. I legit just use the hell out

of it. Paying contractors abroad, et cetera. It's an amazing platform. The rates are so low. I move tons of money and the fees are very low or free. And they've made it very clear that their mission is to make spreads zero. And I'm like, yeah, there's a mismatch between what their mission is and them being more profitable. Now, I have to look more into this because take rates are actually increasing very, very steadily. So that's also interesting, right? Like maybe, you know, watch as I say, watch as I do, not as I say. So maybe I got to do more digging on that, but I do know that they have been a huge mover and shaker in the space by moving rates down next to zero. Fascinating business overall, and it's growing like a weed.

So I know I've had it on my watch list for segments on this show. So you can check that out. It's on the London Stock Exchange. Robinhood, here's another example. Remember the giant fiasco, payment for order flow, GameStop, spreads on commissions went down to zero, like all this stuff, right?

Their customers don't want them to monetize them. Their customers do not want them to do payment for order flow. Their customers do not want to pay spreads on commissions or pay, you know, options fee contracts are going lower and lower and lower as competition increases. Really hard business competing out away all the margins and your customers hate you if you monetize them with order flow. So there's all these examples there where the stakeholders, if they're not all winning, it just doesn't feel like good business. It doesn't feel like a Charlie Munger business. Like a Charlie Munger business, when you hear him talk, typically like he talks a lot about that. He talks a lot. Well, for one, I mean, Costco was the

biggest part of his portfolio for a long time. He's been on the board for a really long time. That's like a Munger type business where the stakeholders of customers, shareholders, and employees, and the business overall benefit together as one cohesive unit. And that's a materially different way to do business. Yeah, I agree. Especially, I think, especially the employee side, because the customer, you see that more often where customers and the business benefit, but oftentimes it comes at the detriment of employees and having all three definitely helps them kind of sustain the business a bit longer term. Because if your employees are not happy at some point, it's going to impact your customer or

it will impact your bottom line one or the other or both, right? Yeah, that's right. And trying to think of other names that would, I'm just like Googling around. I don't think competing incentives, my word here, is a topic people are writing about on Substack. But I'm sure there's more examples that people can think of and think through in their portfolio if there's a name they're thinking of buying. And ultimately, like the reason is not because, oh, I think, you know, I'm such a good guy, only buy businesses that are great for humanity, so on and so forth. That's not what I'm saying. What I'm saying is customer lifetime value matters a lot. Customer lifetime value matters a ton. And the companies that have executed customer lifetime

value to the highest extent have made shareholders gobs and gobs of money. And I can think of very few examples in the contrary where that has happened. Yeah. No, I think that's a really good point. I'm sure we'll stop recording and we'll think of some examples. So that's usually how it goes. Yeah. No, I think that was great. 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 details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb

or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at Airbnbbnb.ca forward slash host. That is airbnb.ca forward slash host. Now, I guess we'll move on to the last segment here. I think you alluded to it. I wanted to have a look back at just the spot Bitcoin ETFs, the launch. It's been seven weeks, almost two months. How have they done? I mean, clearly the price of Bitcoin is doing pretty well since the start of the year. And a lot of people are

attributing this to the spot Bitcoin ETFs, how well it's done. Bitcoin is up 28% since the start of the year and 22% since the spot Bitcoin ETF. I'm looking here, I always, I don't know about you, but I always think about like the Bitcoin price in USD for whatever reason. I never think about it in Canadian dollars. Yeah, me too. So, yeah, so it could be a little bit different. But I did a bit of research. Really interesting. There seems to be a lot of demand being driven by the spot Bitcoin ETFs and how they need to buy as there are more fund flows that are coming in. And let's dig a little bit more about how the fund flows are looking. So fund flows are just

the money that goes in and out of funds. And inflow is money like overall as money that's going in. Outflow is money going out. So if there's total net positive inflows, then it will mean that there's more money going in than out. And if there's total outflows, it means the opposite where there's more money going out. Now, I wanted to have a look at this because it's been a decent amount of time. The dust has settled a little bit from the hype from the launch. Now, the early trends, and that's really interesting. So the market share volume here is what I wanted to look at. So this is just a trading volume for each of the spot Bitcoin ETFs. Now GBTC, which was the grayscale Bitcoin trust before it got converted to an ETF. Well, this one is losing market share pretty quickly. So when trading of the ETF started,

GBTC was kind of different than all of the other ETFs. That's because it got converted from a close-ended trust to an ETF. So it already had assets under management. And when the trading started, it had more than half of the trading volume. So all the volume happening, selling, buying was resulting from GBTC. And now it's down to 30%. And has actually been outpaced by our good friend, Larry Fink at BlackRock with the iBit ETF. So this one is definitely the one that's capturing the most market share. iBit is now the largest market share in terms of trading volume with 40%. Now, the biggest reason here is for the shift in asset under management and fees.

When the ETFs launched, like I mentioned, they already had assets under management for GBTC and they were charging a 2% fee. So when they converted to the ETF, they reduced it to 1.5%. The reasoning behind this is I think they had close to $30 billion in asset under management is that they would lose some asset under management, but they would keep a high revenue coming from that 1.5% because comparing to the other ETFs, literally it's 125, 130 basis point higher in fees than the other ETFs. So there's a big, big difference. You're comparing like 1.5% versus like 0.25, 0.2 for the other ETFs. The main reason that there's still a lot of money in the GBTC.

So it's gone down to, I think, 21, 22 billion now in asset under management. So it's lost a lot of money in the GBTC. So it's gone down to, I think, $21, $22 billion now in asset under management. So it's lost a decent amount. But the main reason is that people are sitting on profits and that if they sell GBTC to buy one of the other ETFs, there could be some tax implications. So that's one of the reasons that there's still quite a bit of asset under management here. Now, before I continue, anything you wanted to mention? I'm just thinking all this competition and pressure in ETF management expense ratios is a good example of companies that are facing extreme downward pressure on take rates for the benefit of their customers.

This is another kind of example is the asset management business. But no, I mean, look, this is a space where the big dogs are seeing money to make, right? There's money to make here, whether you like the asset, whether you dislike the asset, whether you buy it hand over fist, or whether you think it's rat poison squared, these guys are going to make money on it, right? And ultimately here, fees are coming down. So I think it's net-net good for customers. Yeah, exactly.

For one, I had a little bit in a Bitcoin ETF that was listed in Canada because we had spot Bitcoin ETFs in Canada and I transferred it to, I think it was a Bitwise one that I choose so one of for those on joint TCI this would be the one I'm I'm over right now but essentially yeah there's been in all there's been more inflows than outflows even if you factor in the money that has left GBTC so there's been more than six billion in total inflows for the spot Bitcoin ETFs. And you have GBTC right now.

That's around $23 billion. It started around $30, like I mentioned earlier. iBit is the top one of the new ETFs, the ones that were not converted. It has around $6.5 billion in asset under management. So that's a BlackRock Fidelity 4.6. Then you have ARK at $1.6. And the Bitwise, the one I have my money in at 1.2 billion. The rest, I mean, they're pretty small compared to that, but it's still pretty impressive

to see the total inflows that have happened in such a small amount of time, especially considering that GBTC has seen about 7.4 billion in outflows since the launch. It's pretty amazing to see that there's still been more money coming in. And like I said, I think it'll be interesting to see where it ends up at the end of this year when there's a full year behind it, what level it'll be for GBTC. I'm assuming there might be a lot of selling towards the end of the year for people trying to lock in gains or losses. We'll have to see. But I think from what I've read, ETF experts, it's been one of the most successful launches in history as a kind of asset class of ETF, if you'd like, because clearly, you know, you're getting exposure to the same asset, whichever one ETF you're choosing from. But to have 6 billion

in inflows in such a small amount of time is pretty impressive for the Bitcoin ETF launch. And I think it's fair to say that it's been, at least at this point, a pretty big success. You did a segment on, we did, so last Monday release, we did four companies that are on our watch list. You threw in BlackRock in there. We talked a lot about the ETF business, the rise of iShares, nearly what, 4 trillion plus AUM under that business for the ETFs. The ETF business has been one of the saving graces of the asset management industry in terms of equities. The mutual fund business was melting ice cube for a really long time. Investors and consumers were getting smart. They were getting educated. They were getting smarter about the fee structure. They were getting smarter about

their options. And then the technology converged for them to be able to DIY it or educate themselves. This is a perfect example of just like the asset managers looking at a space as hot as Bitcoin and throwing up ETF. The players that have been crushing it in asset management have been having winning ETF products. VanEck, BlackRock, Vanguard, Fidelity. The ones that have adapted and moved with this asset class have really been the stars. This has been the instrument. I think that has defined the last 10 years. And then if you're late, what are you going to do? You're not reinventing. Private equity. What's that?

Private equity. Yeah, exactly. That's what they do. If you're late, what are you going to do? And so this is a perfect example of a new thing that these asset managers are able to spin up in terms of an ETF and get new inflows. And so they're jumping all over it. And we're seeing that. Yeah. Yeah. And speaking of Charlie, he wasn't a fan of Bitcoin, but he also wasn't a fan of private equity. I've heard him like quite a few times rip private equity,

shred them open, especially for the fees. I think that was his big thing. Just not. I mean, it's one thing to charge fees to me. Like, you know, if you want to charge high fees, whatever, that's fine. But it's a transparency aspect that I have a whole a big issue with, because if you're going to charge higher fees, OK, just make it transparent. If people think, though, you'll outperform with high fees, it's their money, right? They can choose to invest it. That's completely fine. But the biggest thing I have issues with is when those fees are very, they're not very transparent or just very complicated to understand. And I think,

unfortunately, a lot of regular people, but also you have like endowments, pension funds that even fall prey to these high fees when you're looking at private equity. But for individuals, mutual funds, sometimes it's just hard to understand the different kind of fees that you'll be paying for someone that's not really well versed in this kind of stuff. A lot of the biggest PE firms are public. I'm just looking at it here. Like KKR, it here like kkr blackstone blackstone carlisle is vista i think vista might be i forget it's great if you're an owner of the business yeah not if it's not as good if you're a client typically but uh you know well yeah you know i'm just like looking at this i'm like well you you know i'm a big fan of the the management, the business, whether or not you think, you know, it's good for their investors. The business is fantastic.

You get like recurring revs, amazing margins, sticky customer base with upside too. So, I mean, it's a pretty good business. Blackstone. I saw some news about Blackstone and I forget what it is already today, but that's okay. How are we doing on time? We're here at 45 minutes. I got nothing more to talk about. The only thing I wanted to quickly hash on

is there is a lot of optimism in the the markets i know i'm not doing the the thursday episode with you have you and dan been talking about the the rise of nvidia 2 trillion market cap like have you been talking about the the air that feels like it's under this market yeah we talked about nvidia we had a fun discussion about it i mean it's uh the market is i was joking i'm like oh market is up nvidia must be up but it's it's kind of market is down nvidia must be down that's kind of uh what seems to be happening right now i don't know like there's a lot of uh a lot of weird stuff it seems like it's happening i mean uh there's just a handful of companies that seem to be pulling the market it's like we're happening. I mean, there's just a handful of companies

that seem to be pulling the market. It's like we're continuing from last year, although, I mean, it's starting to look like a magnificent five, maybe more than a seven. It's NVIDIA leading the way. It's just been interesting to follow. I'm definitely, for me, I think you know me and you know my portfolio.

I do have a little bit of cash on the sideline that I'm happy to be getting 5% on just because there's a lot of business I like, but I just don't love the valuation right now. I think it sums that up pretty well. Yeah, that's a good point. And I mean, there's other stuff doing really well. I find when there's something like an nvidia that's just like stealing the show it steals the you know cnbc's doing like countdown to their earnings all day like it's oh yeah like it's new year like the ball's about to drop on new year's eve like one of those type style broadcasts you know the business aside, that's when things get pretty frothy for sure. And one thing I just

wanted to throw out there is when these types of stocks get so exciting in terms of their performance, a lot of retail investors, a lot of people who might listen to the show, forget that other stocks exist and get like laser focus on like just a few names. We've seen this happen with retail investing communities, with Tesla through the years. There's like a cult following around Palantir stock. I swear, 99% of the investors can't even tell you what Palantir does. There are a lot of other names doing extremely well. If I just pull up a screen of year to date, everything that's done over 10% year to date, let's even do 10 billion in market caps, So like large caps that everyone would know. I just pull up that

list. It's 123 names just in the US alone. So that's large caps doing extremely well on the year. Like there's a lot of stuff out there that's not named NVIDIA. And this is not a knock on NVIDIA at all. Like that's not what this is meant to be. And to discuss NVIDIA really quick, if you're a shareholder, one, congrats. The rise has been historic and amazing to watch and the execution has been legit and they're going to do real absurd amounts of cashflow and they can probably see this kind of demand for like three more years.

The thing I want y'all to recognize is there is a massive compute buildout happening. The large tech players that own this cloud computing, they own and operate these data centers, the actual data retenants, they are in a land grab for H100s. And we've seen land grabs like this happen for new technologies. How sustainable is that build out? NVIDIA can be a fantastic business, but it's not going to grow 80% sequential quarters forever, right? And just recognize that the margin of safety might be gone. And so just to think about that, right? Like, I'm not saying sell the stock.

I'm actually saying congrats, but I'm also saying like cater your expectations here. Yeah, and that's pretty much what we said too when we talked about NVIDIA is just, you know, I think right now I was listening to, I think it was BNN and there was a senior portfolio manager and literally he brushed off any concern

about NVIDvidia going forward only talked about like basically everything going well and none of the downsides and whenever i hear stuff like that the alarm bells go on for me because there are some risks for nvidia obviously valuation is not cheap right now you know one thing that's never talked about it seems like is the fact that most of their chips are produced by a company located in taiwan and that there's still some geopolitical risk but apparently it's completely gone now there's that that's not gonna that risk seems to be very selective on the you know who they assign it to right like yeah exactly it's very selective i've always said that about apple like yeah the apple bears never bowls never will be quick to point out the risk of tsmc but

forget that they make all their chips yeah and that's always what i'm like when i start seeing this kind of stuff to me it's like okay i'm happy to see what happens on the sideline. And also you talked about large customers. They don't name their customers, but I think we can say that, you know, all the big cloud providers are the top customers. I mean, they literally say in their financial statement that one of them represents 19% of their revenue, one customer. If you tell me that's not a risk, I mean, I don't know what is, but. And I know it's one of two companies or one of three. It's one of Amazon,

Meta or Microsoft, 100%. Yeah. Yeah, exactly. So it's, you know, and it's funny because the senior portfolio manager literally brushed that off like it was a zero risk. And that's the kind of stuff. And I know for retail investor, I I was I don't know where I read this or heard this but I think it was the best thing I could say about Nvidia is fear is a hell of a drug and fear goes both ways fear of losing capital but also fear of missing out or FOMO and I think just remind yourself of that I I mean, look, we don't know what's going to happen. Maybe weigh your position accordingly. It's fine to not invest in NVIDIA too.

Or, you know, do like me. I have a little bit of a position because I own the index funds and they own NVIDIA market cap weighted. So there's different ways to approach that too. Yeah, and just think about like what kind of investor you are, right? Because we know there's a sprint to compute build out. And we know that NVIDIA is able to forecast demand for H100s for probably two, three years out. And they're saying, hey guys, it's looking great, by the way. And I'm sure it is. And I think Jensen's probably one of the best guys to be able to capture this opportunity leading NVIDIA. But eight years, nine years down the, like, the compute build out will slow down.

Like, it will. Like, that's how these things work. And so, you know, you can do fantastic with NVID Nvidia for a long time. It's just that when that kind of sentiment shifts or, you know, I compute build outs gone and you have something pent up to, to 2 billion, to 2 trillion in market cap and the, and orders start to slow down.

What happens? Yeah. There's a lot of money really quick. Even, even if they are building the best chips for this purpose three years down the line they're better than their competitors there also comes a point where you know customers may say okay amd sure their chip are not as good but they're also like way cheaper and they're good enough for what we need we don't need to spend to buy yours. So then NVIDIA becomes in a situation where they're like, okay, do we need to cut our margins down to make this more affordable for our customers?

Or they keep the price as is but then end up losing business. I mean, I know you were younger, but thinking 15, 20 years down the line, like back, and Intel processors were always better than AMD. A lot of people still bought AMD because they were cheaper and they got the job done. and Intel processors were always better than AMD. A lot of people still bought AMD because they were cheaper and they got the job done. Maybe not as well, but good enough. And I think for a lot of businesses at some point, it's going to be a bottom line thing and it's going to be good enough for cheaper alternatives.

That's another risk as well, I think, for NVIDIA. Yeah, good point. And we'll leave it at that because I know you got to run. But this is not me being bearish on NVIDIA or anything. I mean, the compute network operating income segment, which encapsules the data center business. In the April 2023 quarter ending was at 2.1 billion. It just closed up at nearly 13 billion, three quarters later.

Not three years, three decades later, three quarters later. So don't hear what I'm not saying. The execution and the demand for this stuff is amazing. The CUDA compiler is world-class. They have the best-in-class product. But to just be thinking about the downsides because you will not hear people talk

about the downsides on CNBC. It's too hot of a name. They're doing countdowns to earnings, dude. They're doing the ball is about to drop on Q4. That's usually a concerning time to be here, Walter. But who's to say? Thanks for listening, folks. Really appreciate you. We'll see you in a few days. If you want to support the show, you can go on joinTCI.com. You see our beautiful faces for radio you see our screen shares you see our monthly portfolio updates which are you know a leap year here i got i have an extra day to do

mine i know you're already done yours and uh those come out on the first or second or third or fourth if i'm lazy day of each month so uh you'll see our monthly portfolio updates that is is at join tci.com. It's $9 Canadian. Can't beat it. We'll see in a few days. Take care. Bye-bye. The Canadian investor podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.