The Canadian Investor - Overlooked areas of the stock market with Andrew Sather

Episode Date: August 9, 2020

In this episode, we talked to Andrew Sather from The Investing for Beginners Podcast. During our discussion with Andrew, he explains how he started investing and how the history of the stock market helps him make portfolio decisions. He then talks about undervalued areas of the stock market that he is currently looking at.We hope that you enjoy the episode!Tickers of stocks discussed : UFPI, WHR, PHM, DHI, TOL--- Send in a voice message: https://anchor.fm/the-canadian-investor/messageSee omnystudio.com/listener for privacy information.

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I'm Brayden Dennis, joined by Simon Belanger as always. But this week, we have Andrew Saylor of the Investing for Beginners podcast and the e-investing for beginners blog. What's up, Andrew? Good to see you again, man. Hey, Brandon. Good to talk to you again. So today, we're going to talk about all kinds of things. But Andrew, we probably met virtually many, many years ago. And I'm still holding you to that. I'm coming down and we're going for beers at some point. But I just wanted to know how you as a self-taught investor, engineer as well,

how did you get involved in investing in the stock market from a DIY perspective? Spoiler alert, I know the first stock you ever bought was Microsoft. And now that it has its eyes on $2 trillion in market cap, that was a pretty good pick. And now that it has its eyes on $2 trillion in market cap, that was a pretty good pick. Just wondering if you can give us a little walkthrough on how you got started in the self-taught DIY investing space. Yeah. First off, thanks for having me on the show, Brandon and Simon. Brandon, not only do you need to come down for a beer, but we also need to go out for a round of 18.

This is true. I know you're going to whoop me with beer, but we also need to go out for a round of 18. I know you're going to whoop me with that, but go easy. Give me a couple words of encouragement. I think we'll be just fine. As far as how I got started, so I went to school for engineering and did an internship in college and then ended up getting a pretty good job in engineering right when I graduated. I was very fortunate for that. And I was very fortunate to have a mentor there. So he became somewhat of a financial mentor to me when I didn't even look for it or ask for it, really. He would talk about the market a lot talk about personal finances a lot

and just how you know a lot of the basics that i think a lot of us don't really learn in school but if we happen to have an interest in investing or the stock market we tend to learn these things so things like dollar cost averaging making sure you're putting money into the market consistently and not trying to time the market, but just trying to make that habit, put money away and let compound interest work over time. And so he would tell me these things. I'm like, yeah, yeah, yeah. It sounds like old person wisdom. I wasn't really too invested in it, I guess you could say. really too invested in it i guess you could say um one day he did mention to me kind of offhand like oh yeah by the way i bought a corvette with some stocks i sold um the other day and i was like

wait what corvette so you know we we all me and a couple of other interns we went checked out the car and it was you know it was a nice looking car and i was pretty impressed and from then on i kind of thought you know maybe there is something to all these things he's telling me. So it kind of started me down this path. And I started, I didn't really know where to start. And that's kind of where my idea for the podcast started with the blog first. Now it turned into a podcast. But basically, you know, I didn't really see anything out

there. There's a lot of better resources out there now, but nothing to really guide you step by step to help you through some of the difficult parts of first your finances, then investing in the stock market, and then picking good stocks and trying to do that with a margin of safety, emphasis on the safety. And so I just kind of stumbled into everything. My first array into reading investing books was not a joke. I went into a, I think it was a Barnes and Noble. I believe it was a Barnes and Noble. And I went to the investing section and I looked at the books there. I had no idea what to pick. So the first one I saw was The Intelligent Investor. And on the cover, it said, Warren Buffett says this is the best book he's ever written. So I'm like, okay, I've heard of

that name before, Warren Buffett. I'll pick up this book. And then another book I saw, it said Peter Lynch. And I was like, oh, like Merrill Lynch. Yeah, I recognize that name too. So I picked up that book too. And then had no idea that it would start me down this crazy rabbit hole of consuming way too many books, getting way too into the details and really just enjoying. And now as we stand today, really just living the stock market and it's been a ton of fun. as we stand today, really just living the stock market. And it's been a ton of fun. Hey, Andrew, I had a question for you.

So when did you start approximately? Like, what, 10 years ago? Like, I know you said on your podcast, but I blanked on it right now. Yeah, so Brayden mentioned I bought Microsoft. That was my first stock ever. That was back in 2012 in November. So after I bought it, I kind of did more poking around and then I started writing about it in April of that following year. So April 2013. And I basically looked at it like, look,

I was a beginner like two months ago. So let me just kind of track the journey and record the things I learn as I go. And maybe people who are a couple steps behind me in the journey can pick up the pieces and learn as I learn. And that's pretty much how it's gone. Yeah, you mentioned how you got started. And I think it's important because there are a lot of people out there who have been putting it off and maybe this latest stay-at-home environment is getting the people to light a fire under their butt to actually get started. to even just one book can completely change your finances. Just one book, the amount of people I've met, they just go, oh, I read this one book. And then like you said, you go down this journey of consuming more and more information, listening to podcasts, whatever it may be. So I think that's really important. And during this journey, I know that I believe you to be, whether you agree or not,

be somewhat of a market historian based on a lot of the research you've done on bankruptcies, deterioration of balance sheets in the past. How would you say being a market historian has helped you navigate different times as maybe you haven't lived that experience personally in your own portfolio, but you're able to draw parallels to certain things in history and maybe even drawing parallels now to different environments that you might have learned about. So I'm just interested to hear what your take on that is. That's a good question. I think in the past four to six months, we've all had to deal with this crazy pandemic. It really makes you realize how much history cannot prepare you for what's ahead and who knows what the rest of 2020 holds, right? And so I think that experience has helped bring a lot of

perspective. And, you know, you don't just see it with finance too, but you've heard it all over the place when people are talking about COVID. You know, they instantly want to go back in time and a place in history because it gives us comfort to think that, you know know humanity has gone through something like this before so a lot you'll hear a lot of parallels to the spanish flu 1918 and you know a lot of people do that with the stock market too um where that can become problematic and where i think it leads to a lot of opportunity today is when there's too many people making a comparison to a previous point in time, then they might miss something because they are basically operating from their previous models of how they've observed the world to be. But, you know, we can't do that with the future because

the future is unpredictable. So to answer your question as it comes to learning about history to help me with picking stocks and investing and making those crucial portfolio decisions, in my mind, it really helps bring a good solid foundation and a base. foundation and a base. So, you know, if you're getting into the market and you have no idea that it's normal for it to crash or to correct every, you know, 10, 15, 20 years, if you didn't know it's normal to have bear markets and bull markets, you would absolutely freak, you know, and I'm sure there were people who did freak and sold everything as soon as the market went down 10%, 15%. And so the history helps you with those foundation and those principles. But I really think it's just the start, particularly if you want to talk about finding opportunities, trying to pick stocks and everything like that. The last six months has really taught me that

running on a model that's based on history is not a good way forward. And it takes a big event to make you realize that sometimes. Yeah, I totally, totally agree with what you're saying. As I always say, history doesn't repeat itself, but it does rhyme. So when you see those big 10%, 15%, 20% and with a lot of companies, much, much more drop in March and early April, I saw lots of people exiting positions. And hopefully not, but a lot of people exiting the entire portfolio. Obviously, that's not what you want to see as long-term investors. You want to hold on to those things. So it's good to understand that maybe this pandemic is something that no one in your lifetime has experienced. But drops in the stock market are not new at all.

Every seven years, you're looking at a correction of some kind. So I'm interested to see what things you're looking at right now in this current environment. I've always known you to be good at finding undervalued growth. So which sectors, which companies are you looking at these days that are kind of fitting that undervalued growth type profile? I do appreciate that title you gave me. That's definitely what I try to achieve for sure. So this is good timing because I just wrote about this in my August issue of my e-letter.

of my e-letter. So the way I view the economy today, I really struggled to try to make a good mental picture of it. It's something I've been writing about for months now. I think I've figured it out. At least it's catchy and we can kind of remember it. So I call it the corona economy. So it's pretty easy because it splits into three kind of secular trends that should sustain itself for a while and three secular trends that should also sustain that are on the downside as far as negative trends that are going to be hard for these businesses to recover from. So on the upside, I think there's a ton of potential in cloud. I see big potential in construction, which was a completely foreign idea to the three months ago. I think it's starting to pick up some traction now. And I see potential in commodities and certain commodities. That comes with a big asterisk. So really you have cloud construction commodities and really on the downside where I see long-term changes that

aren't going to go away immediately, even if we do have this V recovery that everybody hoped for seems further and further away now. But places where i think it's going to be really bad retailers particularly ones that have to depend on physical locations restaurants and refuelers and so refuelers would be your things like gas stations um and kind of convenience places like that and the retail numbers that have come out recently have really backed up a lot of those trends as far as where the government, the US government has reported that sales have gone in their monthly retail sales reports. 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 money sense and with them you can buy all north american etfs not just a few select ones all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details.

That is questrade.com. Calling all DIY do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends. And there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom

Social in the app store and join the community today. I'm on there. I encourage you, go on there and follow me. Search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, Blossom Social in the App Store, and I'll see you there.

Awesome social in the App Store, and I'll see you there. So when you mentioned cloud and construction, I am so in your camp as well, and I've been buying positions that are benefiting from that. There's huge tailwinds behind them right now in this current environment. What is a particular company, perhaps in the construction or cloud segment, that you're looking at that might have outsized performance? Are you looking at a big basket of companies in this area? How's your approach there? So I guess in the past three, four months, I've pretty much each month selected a stock that benefited in some way. It doesn't have to be a direct benefit, but indirect. So one example is Whirlpool.

This was a stock that makes appliances, and a major consumer of appliances will be new home builders who need to put these appliances in these newly constructed homes. of appliances will be new home builders who need to put these appliances in these newly constructed homes and so that one ended up really moving a lot faster than i thought it would and so you know in this through the month of july it went up 25 so i cashed out of that one and a couple others ufp industries this was one that i got long in maybe about a year and a half ago but basically they just provide the lumber and a lot of that goes into home building and construction they've gone up like crazy also in july at least 20 in that month alone. So, you know, it's really picking up steam. And one that I bought back in late 2019,

I think I added another position again in April. It was March, no, it was April or May. And that's Pulte Group. They are a home builder. And, you know, it's kind of an easy way to play construction, particularly residential construction, because they build homes. So they would obviously benefit from a boom in that. Simon, I know you had a question about Pulte Group, and I know I do as well.

So if you want to fire one off, go for it. Yeah, definitely. So, yeah, Pulte Group, I'll be honest, I wasn't very familiar with them before you brought the name up. So to me, it's more regarding the uncertainty going forward with the housing market. So I know mortgage rates are extremely low in the States right now, historically low. There's also the $600 boost in unemployment in the States that's expired. But I know there's a lot of talk. So there may be an extension. But I mean, at some point, those benefits are going to end.

So if we add that with the fact that the economy is not really rebounding like a lot of people had predicted, like that V-shaped recovery you were talking about a bit earlier, I'm not sure if they could really have some severe impact on the housing market going forward, but obviously home builders like Paul's Pulte group, yeah, if I say that correctly with my French accent, but I just wanted your thoughts on that and if you don't see, kind of, if you see any risks going forward with housing in general, but more specifically home builders. That's an excellent, excellent question. So to give you an idea about Pulte Group in general.

So they are part of the S&P 500. That whole industry of home builders is pretty fragmented. They had, you know, they've had different periods of boost and obviously they're very cyclical um a lot of the companies got hit really hard during the last housing crisis i think that goes without saying and so when you look at the big players of pulte group um you know you could pick and choose between a lot of different ones just because they're so closely spaced. But let's talk about multigroup first and why I'm bullish on them. So we kind of have to rewind a little bit

to get back to that corona economy concept. Again, I was writing about this in my newsletter as I was processing the data. So as we saw something that was so radically different, you basically had to throw history out the window. Earnings that were earned last year are pretty much meaningless. And you really have to start from a clean slate and say, all right, what are the facts? meaningless. And you really have to start from a clean slate and say, all right, what are the facts? Not what the media is telling me, not what my neighbor down the street feels. What are the facts that we can observe and interpret for ourselves? So one of those places was the employment situation. So when unemployment first got released, and I realize this isn't a radical idea anymore because, at least in the United States, unemployment dropped from where it was when people were saying it's multiples higher than the Great Depression was, and now it's dropped considerably from that.

considerably from that. When I looked at a report that's released monthly by the federal government, it's called the employment situation. I saw something very, very interesting where if you went past the headlines, you go past the summaries and you read a little bit deeper into what the data says, although unemployment was around 20%, a vast majority of that was temporary unemployment. So you had permanent unemployment that was actually below the last 2007, 2008, 2009 crisis from a permanent unemployment standpoint. And then the vast majority was temporary. So we knew, obviously, that a lot of that would kind of convert into permanent unemployment. We just didn't know to what scale. But for me, when I looked at what the media was saying and they said, oh my God, this is like worse than the Great Depression,

I understood maybe it is, but also maybe it's not. Another important piece of data that I found looking through the employment situation was, again, I was using 2008, 2009 as a reference point. But if you look over, let's say, the past five, seven, ten years, the median income for the jobs that were in the United States had grown quite a bit. for the jobs that were in the United States had grown quite a bit. And so I know there's a lot of doomers out there who will talk about, whether they're talking about Bitcoin or gold, and they're talking about the price of college has gone up like crazy, the price of healthcare has gone up like crazy, and wages haven't been able to keep up with that. Well, wages have done pretty well compared to a lot of other goods and services.

And so you can't use old school measurements to say that inflation is all equal or wage growth is all equal. It's really unequal. And that kind of relates to the big picture of the corona economy. It's not one picture. It's a very split picture of two different realities. And that's kind of what you saw with income. So, you know, we're talking about a difference of somewhere around, I wish I had the numbers in front of me, but somewhere around 600 to a thousand was the extent of the increase in median wages weekly, I believe.

And so something like a 30% increase over the past 5, 7, 10 years, that's really nothing to sneeze at. So from an income perspective, the average median worker in America is stronger than they were during the last housing crisis. Secondly, you had, you know, we have exploding debt. Don't get me wrong. You have governments that are leveraged like crazy, corporates who are leveraged like crazy. But from a consumer standpoint, consumer balance sheets actually got very, very strong and a lot stronger since the last crisis.

got very, very strong and a lot stronger since the last crisis. And so when you look at that historical backdrop and then you compare to some of the new economic data that comes out, not only did the employment situation talk about median incomes, but it also showed that a vastly disproportionate amount of the job losses were from industries where the average pay was much, much less. Things like travel, things like retail, things like restaurants, those were the vast majority of jobs getting cut. And those median incomes are generally lower. And so you have a lot less of that demographic who are buying homes anyways. And then when you contrast that to some of the newer economic data we've had, where, again, the media freaks out

because they say, well, nobody's spending money. They're all just paying off debt. You can never win, right? When savings rates are low, it's bad for the economy and the world. When savings rates are high, it's bad for the economy and the world.

So when I see economic data that says savings rates are very high because of the pandemic, people are staying home, they're not spending as much, that's actually pretty bullish for people who are homeowners or about to be homeowners, particularly if they're able to maintain a high income past a economic difficulty like what we've seen so far.

That was a good answer. That was a good answer. I find it really funny when pre-pandemic, savings rates are historically low. People need to start saving more money. And then, know oh savings rates are reaching all-time highs in this you know stay at home environment why don't you guys go out there and spend a little money for us won't you thank you very much like it's quite it's quite hilarious so by the way the the uh the bold day group like this is this is an s&p component that i don't

didn't know particularly well but they're you but the number one home builder in the States is one that I was following more so recently. I'm not one that reads every single earnings report, but the Q2 of COVID-19 earnings reports were definitely very, very interesting to see which companies are just definitely suffering and which ones are thriving. So I'm interested to see why you'd pick this one versus a company that I've been watching, which is DR Horton, the number one kind of leader in terms of market cap in this home building space. Trades at similar type ratios looks pretty cheap on 10 times enterprise value to EBIT, 12 times earnings. And growing revenue at 17% a year is pretty significant compared to Pulte Group, which is also kind of catching some of that big growth. It looks like the revenue growth is chunky in some ways, probably because they're an acquisition machine, I'm assuming. But I'm just wondering,

this company versus that company, what are you seeing particularly more interesting from Polte Group versus one of their competitors like DR Horton, which by the way, delivered a outrageously good Q2. Yeah. And Homebuilders as a group shot up from that news. So also very excellent question. And thank you for providing that context with some of the ratios there. So I think a huge majority of that group will probably do very, very well. And so we could be just kind of splitting hairs when it comes to one home builder over the other. When I look at some of the major players, you have Pulte Group, kind of the median as far as $250,000 to $1 million homes that they're selling. A company like Toll Brothers

is more focused on luxury homes. Those are going to be $1 to $2 million plus. And D.R. Horton is kind of similar. When I tried to decide which of these was I going to go with I kind of I don't want to say I threw out old metrics out of the window but you never want to throw old metrics out of the window

we always remember that's our foundation we want to make sure those aren't out of control I'm not ever going to want to buy a stock that's at a PE above 150 unless I have a crazy growth story behind it. So when it came to this environment, the problems we have ahead, we had companies all across the board trying to raise liquidity. So they were trying to tap down on credit revolvers to get more cash, maybe take on some more debt. Let's just survive. And so it kind of goes along with how I see the Corona economy too. When you look at companies that aren't going to do well, they could be great

value buys. But at the same time, if you think about investing as this is something we're trying to buy a business that can compound over time. So, you know, if you take two people who are in a race and, you know, one has to make a huge setback and the other one's just kind of cruising along at a steady pace, maybe like the tortoise and the hare, right? The huge setback, even if that person goes 250 miles an hour, they might not be able to catch the other guy. So similar with businesses, there's going to be varying degrees of how much their earnings, power, and revenues are hit. But for me, I'm just, because A, you have a very uncertain environment, Because A, you have a very uncertain environment and B, everybody's really worried about those things and so that's going to possibly create a lot more opportunities. Then I was really looking at short-term liquidity and what is due for these companies moving forward. So a part of the annual report 10K has obligations laid out.

So a company owes, let's say, $500 million in debt in two years. Maybe they owe this much in interest expense in three years. And so when I compared the two companies pulte group had the least amount of obligations contractually that they had to pay for and so that's just a lot of free cash flow that's going to be available to take advantage of opportunities that come down the road compared to a lot of their competitors in the industry. Yeah, I look at both names as pretty well capitalized. And you're right, it might be splitting hairs. Homebuilders as a group are definitely benefiting from the kind of exodus from the mass, the cities that we're seeing.

I couldn't help thinking in my mind as uh you know the luxury homes is 1 million to 2 million come down to toronto and you can get a little shack on the side of the road for uh 1.6 out the window, and you're seeing that right now with these homebuilders and the prices of real estate actually increasing given a horrible GDP decline, the price of real estate is actually increasing outside of these major cities as people leave urban environment and go live in other places. So I think you're right. This is one that definitely is a secular trend that has a lot of tailwinds behind it. And you're going to see growth in these home builders another thing that i wanted to ask you is is kind of and it doesn't have to be with these home builders but with other industries it's it definitely comes to my into my mind why a lot of these companies are doing well too is this

extremely low interest rate environment and these companies benefiting from that in a major way and equities as a group benefiting in a major way. You talked about you would never buy something at over 150 times earnings. Well, technically the 10-year treasury bond is actually at 192 times earnings with no growth mathematically. So I'm just looking to see your opinion on stocks right now, given this extremely low

interest rate environment, which sectors are going to benefit maybe more than others. And this environment isn't going anywhere. The Fed's coming out and saying, look, rates are going to be low for a long time. 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. Bestrade.com. Calling all DIY do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades or investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then

once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, blossom social in the app store and I'll see you there. It's a very, very good point. And I've been thinking about it a lot, maybe a little bit too much in the past two, three months. I'll just say, you mentioned me

being a historian. And so looking at this interest rate environment, I had to look at what's some historical context on it. So let me ask you, Brayden, how long do you think historically low interest rates have been a thing? Or when you quantify the Fed's going to keep rates low, how long do you assume when you hear them say that? Again, I would never try to predict, but I would say when they say for a long time, my brain thinks five-year scale. Yeah, which I think in present modern history would sound obscene, right? It would just sound absolutely crazy. Super. Yeah, very much so.

But history has shown in the period during the Great Depression up until the end of World War II, that whole time period was low interest rates. Going back to the 1870s, 80s, 90s era, there was 10 to 15 years of ultra low interest rates. So we could very possibly have five years, like you said, doesn't actually surprise me, even though it would surprise a lot of people. I think 10 years could happen too, and it's not out of the possibility. It's not out of the realm of possibility at all. So that makes me very bullish. But at the same time, I'm also very cautious when it comes to,

I want to make sure I know how much, what am I getting? I don't want to pay 180 PE, even though that's the going rate for the government bonds, I still want to buy stocks rationally even if I'm very, very positive about the outcome of a lot of these stocks. So I tried really hard to laser focus in on what are the industries that are absolutely going to crush it in this environment. And I gave up because I couldn't. It's just, it's really impossible. And I think you would need all of the economists in the world to work on it. Plus you would need all the practitioners to kind of drill some common sense into their head and take them out of the theory land. And you would just need like a whole global effort to figure it out.

And we'd still probably get it wrong. So I don't think you can exactly figure out who's going to be best, but we don't need to be the best. As investors, we could just be good enough and really make extraordinary amounts of wealth for ourselves, particularly if we remember the fundamentals and the principles. So I'll give you one that I'm very, very excited about this month. So this was a recommendation for August. I will not tell you who the stock was because that goes out to paid newsletter subscribers, and it's still pretty early since that recommendation. But there's an industry that

also fuels the construction home builders industry, and it's called aggregate mining. So just in a nutshell nutshell it's the stuff that makes concrete and asphalt so you have sand and gravel and crushed stone and this stuff gets all ground up and then it turns it goes into concrete it goes into asphalt from there that goes to pave the roads which by the way have to be repaved all the time. It goes into residential construction and it benefits from residential construction spending and public construction spending. So at least in the United States, we have a situation where both politicians seem pretty intent on making public infrastructure plans.

At least they talk that way. And when I just look at the long-term history of the aggregate mining industry, I get really, really excited. So you have a commodity, stone and sand and gravel, which is going to run out eventually unless something crazy happens. Basically, when you go down into a mine quarry and you drill down and you extract the crushed stone, once you've exhausted that mine, it's done and you've got to find a new one. And so there is a possibility that you get some scarcity in that supply-demand equation that pushes the price up. And so if you look at a long-term chart of sand and gravel and crushed stone, you get some scarcity in that supply-demand equation that pushes the price up. And so if you look at a long-term chart of sand and gravel and crushed stone,

it's just been consistently going up. It's like the stock market but without the volatility. We're talking about a 4% compounded annual growth rate on the price of aggregates just because it's in demand. And one reason why it's shielded from the deflationary effects of competition, like China will come in, right? They'll be the low cost producer of a commodity and really crowd more of the developed countries out. It's limited because it's very heavy so it's not currently really efficient to transport this stuff across the ocean so you don't have to worry about japan or china creating the stuff cheaply and undercutting producers

so there's a big producer in mexico you know when we're talking about North America, there's several in the United States. And it's just kind of got a lot going for it. And so you combine those with the fact that I think you'll see even more spending and more demand due to what I perceive as a residential housing boom. And it just becomes another one of those plays where if we have extended low interest rates, people are eventually going to get the courage to buy homes again. And that could spurn a lot of residential construction, which would be really good for stocks like these. I had a follow-up question for you, Andrew, on those. So since I know Braden sometimes and myself too were kind of reluctant for mining stocks just because there's some cyclicality to them. But I was wondering if

you had some things you look at specifically, whether it's the balance sheet or certain ratios or revenue increasing at a certain clip. If you're looking at a mining company, obviously, we don't want you to spill the beans on your August pick. But yeah, some things to look out for listeners if they're looking at certain mining companies, because I would imagine because typically they'll be quite leveraged, you'll want to really pick the best ones if you're investing in those. Yeah, 100%. So when it comes to mining companies in general, you want to look at proven reserves. And so when you think of reserves, I'm going to get pretty granular here, but since we're not on

my show talking to beginners, I feel more comfortable doing that. Mining is a problem because let's take a gold mining stock, for example. If they mine up, let's say, 2 million tons of gold, that sits on their balance sheet as, let's say, I don't know, $20 billion or whatever it is. So as they sell this gold from their reserves, it's going to lower their asset base. And those are assets that aren't going to produce for you again, right? And so you kind of have this self-destroying effect on the balance sheet. For these particular companies I was looking at in aggregates, the ones that were really my contenders did not have this issue. They had a lot of proven

reserves. And so when you look at mining, you have to differentiate between the two. You have like reserves in the balance sheet and then proven reserves. And so proven reserves was what I was really focused on. And so they had something like over 100, maybe 200. Yeah, I think it was like 200 years worth of proven reserves, which means getting into mining is very expensive because you have to get government

permits. You got to get the equipment to secure the mine. You got to drill down, all these things. It's very capital intensive. And so to have all those proven reserves means you don't need to make those additional outlays in order to get those. You just have to spend the normal amount in the course of doing business in order to extract that. So with 200 and something years left of proven reserves, they're on a good path towards having long-term profitability. What I looked for particularly, and it helped drive my decision making was it was it was an it's an industry at least in the United States and it could be different for aggregates in in other places it was very growth was very much driven by M&A and so I looked at their previous acquisitions and then I looked at what was the outcome of that acquisition.

How much did we increase revenue? How much did we grow free cash flow? Was it a decent ROIC? And so as an example, one of their major acquisitions, I went through and it got super granular into the numbers i compared proven reserves with how much they spent with acquisition with you know region margins and all these things and i i calculated about like a five percent roic on their acquisition which in my mind is fantastic because that's just assuming that the price of aggregates never grows from this point out. And this acquisition gave them 125 years of proven reserves. So to get a 5% off the bat ROIC on their acquisition, I thought that was pretty good capital allocation.

And so that's really what I was looking. And that's what drew me away from their other competitor, who's also very big. That's what drew me away from their other competitor, who's also very big. But it wasn't clear to me that their recent acquisition was aligned with good ROIC. And so that's why I went with the one company over the other. So that, ladies and gentlemen, is how you do a proper research into mining stocks. Andrew, we have a lot of mining stocks on the Toronto Stock Exchange and the TSX Venture, as you can imagine, with so much resources north of the border. And people tend to take a dartboard and throw it at junior mining exploration companies and either confirmation bias, think they're a genius, or lose their hat.

So it's important to distinguish that in terms of what is a prudent amount of research versus not. So I appreciate that you said that. Let me make a point on that before we move on. It would be like betting on your neighbor's ice cream shop and trying to compete against like ExxonMobil or Chevron. These aggregate companies are very integrated. They have systems in place to deal with distribution, to deal with the refining and all of those things. And so when you talk about like a junior miner, they're just really kind of throwing dice and hoping they land on a pot of gold. And they don't have any other operations to back that up.

And so that's where a mining stock like that can be very difficult. And you really have to backdrop that against a big integrated player, particularly in a commodity industry. If they're not vertically integrating or moving that way, there could be a lot of risk in any commodity or mining stock or mining business when you start to think about big business strategy. when you start to think about big business strategy. Yeah, it makes a lot of sense. I like that you drew the comparable to the majors versus the minors in oil and gas. Exploration companies versus the Exxons, the Suncores of the world are not apples to apples at all.

So it is worth mentioning that. And your thesis makes a lot of sense based on what we've been saying and what I've been writing about, which I think is that global infrastructure within this environment, with the extreme appetite for alternative and real assets, I think going through this decade, that big secular trend, you're on that same exact thesis. So I think that makes a lot of sense to me. So let's wrap this up. This has been a great conversation, Andrew. What can we find you on the pod and online?

Yeah, you introed me perfectly. So I have a podcast the investing for beginners podcast very similar your guys's show it's me and dave ahern and we're just um trying to help people navigate this difficult time um and we don't we don't focus all on beginning stuff it's we i feel we try to do a good balance of beginner stuff, intermediate stuff, advanced stuff. And you can also, if you're into reading, our team over there at einvestingforbeginners.com is pumping out content like it's nobody's business. So that's also a good resource for people if they want to learn more. Perfect.

Let's do this again sometimes, Andrew. It's always good to talk to you. Thanks everyone for listening this week. This is the Canadian Investor Pod. As always, getstockmarket.com. Lots of resources there for you on that website. Thanks so much, Andrew, and we'll talk again soon. Yeah, thank you, Andrew. Yeah, thanks guys. The Canadian investor is not to be taken

as investment advice. Braden or Simone may own securities mentioned on this podcast. Always make sure to do your own research and due diligence before making investment decisions. Thanks for listening to this episode of The Canadian Investor. To get a list of the top Canadian dividend stocks right now and other valuable investing resources, go to GetStockMarket.com.