The Canadian Investor - Red Hot Inflation & is Robinhood for Sale? - Earnings Roundup

Episode Date: June 30, 2022

In this release of the Canadian Investor Podcast, we cover the following earnings releases and news: Canadian CPI reaching 7.7% Accenture earnings Blackberry earnings CN Rail’s new capital plan Rumors of FTX looking to buy Robinhood Three Arrow Capital, a crypto hedge fund, defaults on loan   Tickers of stocks discussed: HOOD, ACN, ACB.TO, BB.TO, CNR.TO Our Website Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Check out our portfolio by going to Jointci.com Sign up to Stratosphere for free 🚀 our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense. Check out the Yes We are Open Podcast from sponsor MonerisSee omnystudio.com/listener for privacy information.

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

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My name is Brayden. As always, joined by the legendary Simon Belanger. Simon, you got to put me on your shoulders for today's episode. If you can hear me, listeners, hear me, hear my voice right now. I was at my buddy's wedding last night and he's my buddy from university. He has this gigantic Indian family. His now wife has this gigantic Indian family. gigantic Indian family. His now wife has this gigantic Indian family. And I had never been to the hyped up Indian wedding. I've always been said like, oh, they're so fun. Dude,

they are so fun. The things that they do and some traditions that they do, I kind of want to utilize because I had an absolute blast, but you can hear the repercussions this morning. Yeah. Yeah. I mean, I've never been to an Indian wedding, but I can relate when I go back to when I was in Taipei, when I was 21 years old, I went to a Taiwanese wedding and it was just awesome to see some of the traditions that they have that we don't have. Definitely, if anyone can experience weddings from other cultures, it's always fun to see what kind of traditions that they have that we don't have. Definitely, if anyone can experience weddings from other cultures, it's always fun to see what kind of traditions that they have that are different than ours. Yeah. And like the amount of people that were there, I'm like, dude, I don't

have enough friends to fill this entire place. Like, how do you, how do you guys know so many people? Join tci.com is the Patreon page for the podcast to support the show the show goes on mondays and thursdays the show goes on we get the content going and if you subscribe you get our monthly portfolio update we're just a few days away from the month turning over so simone and i will have our latest moves and you get a little shout out so let's give some shout out we do probably once a month frederick, Michael, Lyle, Steph, Charles, James, Summer, Aaron, Larissa, Jason. Thank you so much for supporting the show. All right, Simon, let's get into the content because we did the US CPI print last week.

The Canadian inflation CPI print came out today. And so it seems like we talk about it a lot, but it's front of mind and the Canadian numbers follow the US numbers and we're not going to just not talk about them. It is the Canadian Investor Podcast. So take it away. Yeah. And everyone and their brothers and sisters are talking about inflation. So I think we'd be missing something if we don't talk about it here. So Canadian CPIs rose to 7.7% in May. It was the highest level in 40 years. I don't think this comes as a surprise to anyone. Obviously, if you're just buying stuff on a regular basis, you've probably noticed that the prices are higher.

Actually, before I go with the data, we ordered Lone Star recently. Oh, my God. If you ever order some Lone Star, their prices have been really like it has to be a 25, 30% increase. Is that the meat thing? I don't know. What is that? Lone Star? Yeah.

What is that? Oh, it's kind of a Mexican kind of, you know, I think it's from the US. They do like fajitas, all different kind of things. Yeah. Oh, you guys don't have that in Toronto? I've never heard of that. Oh, okay. Is this like a restaurant? Yeah, it's a restaurant. Yeah. Oh, like takeout. They do takeout, but you can go in person too. I thought for sure you had that in Toronto. When you said that, I thought you were talking about like, you know, people order like steaks and like frozen meat to

keep in like their freezer you said lone star i could just picture like a big old steak but okay so it's it's some restaurant exactly i got it i'm not familiar with it and my wife really loves it and obviously she's pregnant she was craving that so who am I to say no? I had to go with it. But that really hit me. That's got to be one of the things that I crave the most often, though, is like tacos and burritos. Yeah, yeah. Like sometimes you just need that, dude. Yeah, I don't know if it was just them, but the prices.

I mean, we order there fairly regularly, once every couple of months, I would say. And it has to have increased like 20, 25%. That's how bad it was. But I digress. In terms of official inflation and CPI is the Consumer Price Index. For those not familiar with it, it's the official government measurement for inflation. Can we start the Lone Star Price Index? Maybe it's more accurate. Might be more accurate. Yeah. Yeah. You'll have to bring you there when you come to Ottawa. Okay. Sounds good. I'm holding you to that, by the way. Sounds good. Food was up 8.8%. Shelter prices were up 7.4%. Gas was up 48%. That comes to no

surprise. I mean, every time I go to fill up our car, it seems to be more and more expensive. And clothing and footwear keep staying relatively low at 2.2%, which is a bit surprising, but it's being pretty consistent. Every time I drill down to the categories, it seems like it's always in the low single digits compared to everything else. I'm surprised it hasn't picked up because that was the one lagging thing that it was very obvious. It was like, okay, people are not going into the office. They're not, you know, maybe not socializing as much. So, people are not buying clothes or new shoes because they don't care about looking fresh. But why is it not like picking up like aggressively? I don't know. I guess there's just, I'm not sure. I don't have a good answer for that. Yeah. I think maybe because fashion tends to be you know things go out of fashion

relatively quickly so things go on sale when they have inventory surplus and maybe people are just you know fine with buying stuff that's slightly out of fashion to keep costs down yeah it could be something yeah i mean it's it's very discretionary to begin with, right? Like food, shelter, gas up big are all the non-discretionary. So, those consumer discretionary stuff staying lower maybe makes sense. Another thing is just like me kind of brainstorming here is I don't know about for women, but me and you can probably speak to this. For men, there is an ongoing trend to men keeping just like one closet. This is the trend, right? It's you can wear this like kind of half dressy pants and shirt to the office, to social outings, like even like, you know, it's like comfy enough to hang out at home

in it. And it's kind of like this consolidation into what they're calling one closet because you don't necessarily need to wear a suit every day to the office or something. This is just an ongoing trend. I don't know if that would really come out in the data, but maybe a little bit because I know I've done that. Like I just wear my like Lululemon pants, Lululemon like golf shirt for every occasion. Yeah, I would say that's probably the case for me as well. Definitely more now than pre-pandemic. So yeah, I could agree with that too. Now, if we look at the data on a province by province basis, it was at least 7% across the board east coast provinces were hit especially hard with all of them being above eight percent and pi being the highest of all provinces at 11.1

manitoba and bc were also above eight percent while ontario quebec and alberta were all below eight percent but of course above seven percent the Bank of Canada Deputy Governor, Carolyn Rogers, commented that high inflation that we are currently seeing is why the Bank of Canada is increasing rates aggressively. A few weeks ago, the Bank of Canada also said that it was accountable for keeping inflation better in check. The reality is, I think the policies of the Bank of Canada have some impact on inflation, but to what extent, I really don't know. But I know there are tons of things

they have zero control over. Here I'm thinking supply chain issues that were caused in part by lockdowns around the world. That's what really triggered, right, all those supply chain issues because you had these manufacturing plants being shut down when COVID started. And now we're seeing all these delays in ports and, you know, all the things that the Bank of Canada has zero control over. Labor shortages are not helping as well. And it's also causing employers to raise wages and obviously their prices to consumers or other businesses. Limited supply of certain commodities because of geopolitical events is something else that's been happening that the Bank of Canada does not have a lot of influence on. And the last thing here to put things into context is Canada is a small portion of the world economy. Canada's GDP represents a

bit less than 1.5% of the global GDP. And the GDP is just a gross domestic product, but obvious on a global basis. And with CPI being higher than expected, I'd be very surprised if the Bank of Canada doesn't increase its benchmark rate by 75 basis points on July 13th. For those of you not familiar with that language, it would just mean increasing it by 0.75%. Yeah. So I look at this and I look at my credit card statement for the month of June. the month of June. And it makes a lot of sense, the numbers that you're presenting here as I look at my credit card monthly statement with complete anxiety. No, I mean, I get it. People are thinking about this a lot because it's just so noticeable. When you're moving up high single

digits, like year over year for the month of May, spooky, man. Another thing is I've noticed since this is coming out every month, everyone wants to talk about it. We got to remember that this is year over year from the month of May. This is not sequential increases. If it was, oh boy, we'd be in some serious pain. If it was, oh boy, we'd be in some serious pain. But even then, like you said it here, highest pace in 40 years.

It's no joke, man. Like you're going to notice it. You're going to feel it. And no one's immune to it, really. No, and unfortunately, I think the lowest income households are definitely the most impacted here because some of the largest increases are the things that you need to buy. You don't, there's no option, right? You have to get food. And if your income's not high, you're going to have to dedicate a higher percentage to food. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using

Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly.

Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Calling all DIY, do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time.

And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, blossom social in the app store and I'll see you there. All right, let's do our first earnings of

the day. Accenture, Accenture for those who don't know what Accenture is, ticker ACN. It is a Irish company that has turned into a global powerhouse of a consulting firm. They have over 700,000 employees, which is kind of insane. It is one of the largest employers in the entire world. And so they do digital transformation consulting. And so they buy a lot of consulting firms, they grow organically. So they have this kind of two pronged approach. Now, as for the quarter, revenues were up 22%, which is fantastic. It is, is you know we're talking about a very large company in market cap what is it today i'll tell you right now that's it it was in the hundreds of billions right the last time oh yeah yeah 200 billion 200 billion in market cap and that's down

that's down you know it's a consulting, but it's a tech company too. Their stock's down 30% and it's still a 200 billion market cap company. Yeah. So they're out of Dublin is their headquarters. Now this company has become absolutely gigantic. And the fact that they're still growing that top line at plus 22% for like what I'll call boring consulting, right? Free cashflow for the quarter of 2.87 billion. So that's almost three bill in free cashflow for the quarter, which is up 28% year over year. New bookings. Now this is the number. Bookings is the number that you want to track for this consulting company because bookings is like future business that they have booked from their customers. So new bookings in the quarter was 17 billion, which was up 10% year over year.

That new bookings number is the one we track at stratosphere.io is the most important. So if you type in Accenture, you can find that one. We track it every quarter, every year. And so it's very important. When it comes to guidance, this was a breath of fresh air. Raising guidance. You haven't seen that much lately, have we, Simon? When's the last time we raised guidance?

Well, it seems like everyone was raising guidance like mid-2021 and now everyone's either reducing it or keeping it kind of stable. Revising it. Yeah, exactly. But not many are increasing it. That's for sure. Not many. And so they have raised their full year revenue growth for the year of 25.5% to 26.5%. So we'll split the difference. They raised their full year rev growth to 26% in local currency. They expect operating margin of 15.2%, free cashflow of $8 billion to 8.5 billion. So this operating margin, by the way, another one we track every quarter, this operating margin number continues to tick up, which is like kind of nuts for a services

business. Clearly there's something to that. Now, Julie Sweet, the CEO, I have two main quotes here. They're kind of long, so I'll bear with me here, but right from the press release, I'll say one from the press release. And then one I wanted to highlight from the MD&A that my analyst Adrian sent me. And I thought it kind of really speaks to the importance of this company, how big they have become, and really their core value proposition. So Julie Sweet in the press release said this. She's the CEO. Quote, our very strong financial results for the third quarter reflect continued broad-based demand across our markets, services, and industries, and the continued recognition of the outstanding

talent of our 710,000 people. That is insane. Did I say 710 million before or something insane? No, I said 710,000. Okay. I thought I just, I read that number. I'm like, I think I just misspoke. Yeah. They have a, you didn't know Simone. They have 710 million people close to a billion. No, that is not true. 710,000 people. This workforce is gigantic. We continue to gain significant market share and our services have never been more relevant as our clients turn to us as the trusted partner for the solutions they need to accelerate growth and become more resilient and efficient. It's like, okay, all right. I just wanted to highlight that because this is one of the largest companies in the world.

But from the MDNA, there's a little thing that she said that she was talking about here. And here's the quote, let me bring this demand environment to life. So the previous paragraph was about how the demand for their services is just ridiculous. Their customers are booking more, they're getting new customer bookings, and they're just growing organically like that. She goes, let me bring this demand environment to life. We help our clients execute total enterprise reinvention by helping them build their digital core, optimize operations, and accelerate growth. Cloud data and AI are

fundamental to a strong digital core. We are working with the Clorox company, a leading multinational manufacturer and marketer of home care, household and health and beauty products for consumers, as well as tech products and technologies for professional customers. The company is undertaking a broad digital transformation that will touch every aspect of the enterprise. We will help the company modernize business processes, streamline their operating model, leverage advanced data and analytics insights, and establish a future-ready technology foundation to deliver new levels of customer and consumer experiences, accelerate go-to-market activities, and enable a more agile and resilient supply chain so they can lead and shape the consumer goods industry. So this just kind of speaks to like some Fortune 500 company as boring as Clorox. Can you think of a company like Clorox that you don't think of tech, do you? No. And I find funny that they took the time to explain what Clorox was. Like everyone, everyone after the pandemic is very familiar with Clorox. Yeah. You remember Clorox? I kind of laughed when I saw that.

Yeah. I probably could have skipped over that here, but you don't think of these companies as tech companies and they're not, that's not their core process. Like Clorox would not identify in saying that there's some technology company, but all of these companies know that their digital transformation and digital infrastructure is incredibly important for them to set themselves up for success in the future. And they don't have the talent pool. They don't have the talent pool to pull it off. You're not a cloud architect.

You're not a network engineer. You're not a software engineer going to work at Clorox. Like that's not happening. And so they got to go outsource. And Accenture is just the name in town. I think that there's a lot of room for growth for Accenture these days. It's positioned in the perfect place for the 2000s. Yeah. Yeah, I know. I think a lot of companies would not bother with trying to do that in-house. It just makes no sense for them.

And the last thing I'll add here is, again, for those who are not familiar with the jargon, MDNA is Management Discussion and Analysis. Usually it's a document where the management will discuss the results into more detail. They'll also sometimes have like some additional financial information that might not be the gap. So generally accepted accounting principles, for example. So just in case people were wondering. Yeah, it's the MD&A management discussion and analysis is a chance for the executive team to just talk about their wins and explain, you know,

things that won't come out in a financial statement as well. And so just talking about the business and their chance to show off why they're awesome. Yep, exactly. Now moving on to a company that's a little less awesome, I would say. But I'll give it to them. They have a weird reporting schedule and it gives us an earnings to talk about when there's not that many companies reporting. The company I'm speaking about is BlackBerry. They released their Q1 2023 earnings. Revenues were down 3.5% to $168 million. Gross margins were down 360 basis point to 61.9%. They had a net loss of $181 million, which was about three times more than the loss from last year, just a bit less than three times. Earnings per share loss of $0.35 per share, which was more than three times that of last year.

So they diluted a little bit. That's what it means. They lost $41 million on a free cash flow basis for the quarter and their cash and short-term investment were down 7% to $663 million compared to earlier this year. I believe it was February. I forgot to add that to the note. These are the numbers that I grabbed from their financials that they release but their earnings release is pretty interesting when you look at it because they definitely tend to focus on the positives and they do not they just kind of leave some stuff out i'll just say that so can we double click on this for a sec because you're going to talk about what these numbers are yeah but if you see a press release and they hide their top sales number, that's always a red flag. Oh, yeah, definitely. Yeah. And you'll see.

And I encourage anyone to go look at their press release because what they and I won't talk about every point in the press release, but just some of the things they mentioned. So the IOT revenue. So IOT is Internet of Things. It's kind of how everything is connected, I would say, probably the best way to explain it. So IoT revenues increased 19% to $51 million. Cybersecurity's revenue increased 6% to $113 million. So both of these combined represents the vast majority of the revenues now at $4 million now under press release they

said licensing and other revenues was 4 million but they left it at that they didn't include a percentage because if they would have included a percentage it would have been down 83 percent from last year so they're definitely trying to highlight what direction I think they're wanting to go with the business and John Chen the CEO wrote this in their earnings release. BlackBerry entered fiscal year 2023 with solid momentum. And this quarter, we continue to execute well. At our recent analyst day, we outline our three and five-year financial goals for the business.

Our performance demonstrate that our operational plans five year financial goals for the business, our performance demonstrate that our operational plans to achieve those goals are starting to deliver results. So I went and had a look at the presentation that they had at their analyst day, and I took a slide out. And essentially they're trying to, I would say double their revenues on those two segments that I just mentioned.

So the Internet of Things and cybersecurity, I think they call it their software and services. They're trying to double that in the next five years. I think that's pretty ambitious. Will they be able to do it? I don't know. But all I know is John Chan has been there since 2013 to turn things around. I'll give him credit to one thing. They have pivoted away from smartphones.

But is it really going to be a good business? I don't know. And honestly, at this point, nine years into the job and counting, I still think they're trying to figure things out where they're going. Maybe they have a nice little niche here. But, I mean, they're still kind of burning cash. I've been hearing that story for nine years. Yeah, exactly. They're still burning cash. They have less and less intellectual property. So over the years, they've been monetizing a lot of the intellectual property that they had. They have less and less of that on the balance sheet if you look at it. So they're really putting all their eggs in that, I guess, IoT and security services. There are some major companies that are in those type of businesses as well. So whether

BlackBerry does well or not, I don't know. But I personally would not touch that. It's too bad because it was a Canadian darling at some point. But at this point, I don't think it's a great business. It was such a darling, man. Good old rim. Yeah. Waterloo, right? Waterloo. Yeah.

That's right. Well, they're still HQ'd there. I think so, yeah. I have a friend that works. I don't know if she's still there. But yeah, no, I mean, and you're right. I've heard this nine years of business turnaround story with john chen it's like you're not new to the job anymore pal yeah how can you stay for that long

when you've been there to turn around the business and i guess he sort of has a little bit but i don't know to me at some point like you just need to move on to someone else like a decade i feel like it should be further ahead yeah and they've pivoted the business sure into the services software outlook but it's not like it's like a leader in anything right now as far as i'm concerned like you couldn't convince me to buy BlackBerry as a cybersecurity play like they're discussing over like a CrowdStrike. There's just no way. There's just absolutely no chance. CrowdStrike is such a better business with such a better product, with better network effects, more customers, better at everything, pretty much. And so from that perspective, for those reasons, I'm out. Let's talk about CN Rail's capital plan. So they just launched this into way too many press releases. They had to do this so many different press releases for all these different provinces and states and just did a bunch of copy and paste. And so they issued all these different provinces and states and just did a bunch of copy and paste. And so they issued all these different press releases, but I'll roll it up into one for you. So they rolled up this

press release from CN going, we are enabling sustainable growth, improving capacity and advancing the company's commitment to safety. Okay. I'm not sure. Those are some words. Let's see what they mean. So I look into it. It says, this includes investments in technology, rolling stock units, and company-wide decarbonization initiatives, as well as network improvements. These investments will power sustainable growth and ensure the continued safe movements of goods in the areas of investment. I just swapped out in the areas of investment because they released this with location X in all the press releases and everywhere in CN's transcontinental network. Quote, we continue to make significant investments in our network and technology. We are building the premier railroad of the 21st century to do even more for our

customers, railroaders, shareholders, and the communities in which we operate. That is Sean Finn, the EVP, Corporate Services and Chief Legal Officer. So these are the numbers. They're investing $150 million in Illinois, $185 million in Saskatchewan, $30 million in Tennessee, $40 million in New Brunswick, $15 in Nova Scotia, $160 in Manitoba, $365 in Alberta, $430 million in Ontario, $335 in Quebec, and $390 million in British Columbia. So lots of investment, especially lots in Canada here, clearly like well over a billion dollars. And so they have announced their capital plan and to continue to improve their network. They're doing what they're good at, right?

Back to doing what they're good at. And so this is a serious plan. I think it's, I guess it's good that they do these different press releases because they can get some pat on the back from those local governments as well. Yeah, I'm sure that's the main reason. That's the real reason. Yeah, exactly. Especially when there's been some – has there been strikes? I know there has been in the rail industry in recent years.

So, I think they probably want to highlight the good as well as to not draw too much attention on the bad. Yeah. No, I mean, that makes sense. There has been some strikes. I saw that that was in part of the news as well. And so I have no real insight on that at all. I do have two close friends that work in CN, like up north in Ontario, and they love it. Like they feel like satisfied with their jobs. They can't wait to tell me about it,

actually. Hey, that's good. Yeah. Yeah, it is good. It's great. I love that. So that's what's going on at CN. 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 winningwinning 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 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 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. Okay, now moving on to some more bad cannabis related news for some publicly traded company. Bad cannabis related news for some publicly traded company. So Aurora Cannabis is laying off 12% of its workforce as part of a reorganization. The cuts are part of a $70 to $90 million in additional cost savings that Aurora Cannabis identified last quarter. They had also reduced their workforce earlier this year with the closing of three production facilities including i think they were mostly in alberta if i remember correctly now i do have a question for you brayden because we've talked about the cannabis space quite a bit have you had people asking you about like investing in psychedelics for example like magic mushrooms yeah yeah yes i have and i won't call them out but i

have someone that i'm close with that has lost considerable amount of money and one of the speculative ones okay and so yeah i mean i've i've seen there was a time there where it felt like this october of 2018 where people were just buying it for no reason because it's quote unquote, the next big thing. Yeah. Which should always raise eyebrows. Yeah. And the reason I ask you is because I've had a few people ask me about it since I would

say probably the beginning of the year. And the most common question is about psilocybin and psilocin. I'm not sure. I'm probably... I think that's the active ingredient. These are the active. So that's what's known as magic mushroom. So those are the questions I've been getting mostly. And I'll be honest, I haven't done much research into them. But for me, there is definitely some lessons to be learned from the cannabis space here because the total addressable market also known as TAM is something that is really hard to know for markets that are illegal so it's especially hard to know when it's something that's illegal to produce and sell like you would see here and that's what we learned a lot of investor learned

the hard way for cannabis where you had these companies you know projecting that the TAM for Canada would be in the tens of billions of dollars when we didn't really have any data to go with they were just estimates and even if the estimates would have been good we didn't even know what percentage of that would translate to the legal market and the second thing I think is important here is just be wary of the hype. People ask me about this because they know that I have an investing podcast. And usually when I start seeing these type of questions come up over and over, it's because there's a lot of hype around it. And I think people are also, you know, pissed off or not pissed off, but they saw that they missed the opportunity of making a lot of money if they timed it well for cannabis in 2016, 2017, 2018.

And they're trying to just hit the mark on the next big thing. Yeah, that's right. It's trying to catch the next big thing. And usually with no research. Yeah, not always. not always, but often. Yeah. Yeah, exactly. I will venture and say usually. And so, yes, this is always one of those things that pops up. And it's not that there's nothing to it, right? It's just that you don't have to be the first investor to make a lot of money in something like this. There are so many examples of this. And the easiest example of that is that in the dot-com

bust, there were so much junk, but there was also so much good, right? Like think of the companies that imploded. It was amazon.com, Microsoft. Last time I checked, they're worth a couple trillion dollars these days. And so there's always something useful that comes out of it. But think of the endless pile of junk that went to zero along the way as well. So you don't have to be the first guy lined up buying this stuff. So they could be interesting though. I mean, I have seen some doc, you know how I like my documentaries and I've seen some pretty awesome compelling evidence medically about the benefits of the active ingredients in magic mushrooms yeah so it could be cool yeah even the government of canada website had something where it says it's illegal to produce

and sell but there are starting to be more studies that are being done and some are starting to show that there may be some benefits for certain types of conditions, but it requires more clinical studies. So to be continued, I mean, if you feel compelled to, you know, invest in that space, make sure you do your research. And I would probably just say, like, make it a very small percentage of your portfolio. That way, if it does go to zero, it doesn't, you doesn't wreck your savings. Yeah. There's a lot of risks at play still. Okay.

Hot off the press because we just got this. This is like just in. Crypto exchange FTX, which we talked about last week, I think. Yeah, we did. Yeah. They're in talks of acquiring Robinhood, the stock trading app. So Robinhood shares just bounced 15% upwards with the rumor that FTX is discussing an acquisition and potentially like quite hostile, potentially. Sam Bankman-Fried, the founder and CEO of FTX took a 7.6% stake in Robinhood last month, according to some SEC

filings. Dude, this this guy i think we were talking about him last week this guy is stupid rich oh yeah he's worth in the 20s of billions i think yeah yeah yeah yeah he's 30 years old if forbes i have him here at 24 billion and like how accurate that is is probably wide margin probably changes uh well for sure changes on a day-to-day basis. His fluctuates probably a lot on a day-to-day basis. But, dude, this guy, like, how is he so well? Like, I know he started FTX. It's private, right? So he probably owns the whole damn thing.

I know he was doing, like, stupid amounts of volume with even just, like, 20, 30 employees. I was listening to a podcast about it. And so I guess he sees the value of Robinhood, even though the business is really struggling and users and top line is shrinking pretty good. And you know what he also sees is a group of 15 million active users that could also be very interested in trading on FTX, right? There is a very good synergy here, I think, between the two companies. And so I can see why Sam Bankman-Fried wants his hands on 15 million active gamblers. I'm calling them gamblers. That's what it is.

I think it kind of reminds. That's what it is. Obviously, everyone knows what we think about Robinhood and, you know, kind of trading that they're promoting. But I think it would make a lot of sense for FTX and they might end up getting Robinhood like pennies for what it's actually worth. Yes. So they IPO July 30th, 2021. So right at the heart of the peak, shares are down 75%. And that includes today's bump. It was like 80% as of like last week from their IPO. And worse from the high, 83% from their highest trading day, which was August 6th of 2021.

My God, woof. And they've lost a lot of users. So not only are trading volumes shrinking, which we've talked about because it's a bear market, but they're actually losing actives. I mean, the brand got completely tarnished when they stopped letting people trade with the GameStop fiasco, right? Yeah. And one thing to add to that now that I'm just remembering that is in May, FTX said denounced that it would move into stock trading as well. So this makes a whole lot of sense, this acquisition when you tie these two things together, because obviously Robinhood is one of these platforms where you can buy stocks or crypto.

They have tons of crypto available on Robinhood as well. So it just seems like it makes a whole lot of sense. Like sometimes that doesn't make sense, these acquisition talks, but here it would be. And FTX is probably going to get, like I said, you know, pennies on the dollars for the Robinhood users. How does FTX have money though? Aren't they getting like absolutely wrecked like everyone else? Look at Coinbase. Yeah. I mean, again, because they're private, right? It's hard to know for sure, but they have a really good reputation in the crypto

space. I would have to think that they just had more conservative kind of practices and probably more efficient business than a Coinbase because Coinbase hired a lot. They got bloated fast. I know that FTX was doing crazy volume with just like a little bit of employees. So if that's how Sam was running the business, I'm sure he's been running a pretty lean ship. Yeah, and I think these type of market downturns, when especially it hits an industry as hard as it does, and it's not just crypto, right? It's stock trading. We've seen it.

The volumes are way, way down. You, you know, the cream kind of, or the oil or the cream kind of rises to the top, right? The best businesses will come up on top, and they will probably be able to pounce on some really good opportunities, because they were more conservative, they were more efficient, when things were going well, they didn't take as much risk. And I think that's probably what's happening with FTX. And we saw that happen with the financial crisis in 2008, 2009. I mean, just think about TD in Canada.

They went on a shopping spree in the US because they could get these banking assets for pennies on the dollars. Because they just had the financial resources to do it. Right. Very interesting. We'll see if it goes through. It's just rumors, I think, right now, or talks. Yeah. It's just discussions or something. Yeah. Yeah. So... And this is hot off the press. I don't know nothing beyond that right now. So, interesting. Okay. You got one more topic. It's kind of similar, actually.

Yeah. Yeah. A bit more in crypto land.. So there's a crypto hedge fund that just defaulted on a loan. People may have heard of this. So it's 3 Arrow Capital or also known as 3AC. It's a crypto hedge fund. It has defaulted on a loan. So they run like a long short on coins? I think one of the things they did is they had a lot of money in TerraUSD and Luna. Oh, yikes.

Yeah. Yeah. So they were definitely, I think, using leverage to turbocharge their returns and now it's backfiring on them. So it has defaulted on the loan it had with Voyager Digital. By the way, Voyager Digital is listed on the TSX under V-O-Y-G. The loan is valued at approximately $670 million USD, which is a combination of... Voyager's down 25% today.

Oh, yeah. Yeah, they're hurting. And the $670 million USD is a combination of $350 million USDC, so the stable coin and 15 250 bitcoin 3ac had to repay 25 million worth of usdc last friday so on june 24th and the remainder of the loan so the loan in full today which it did not do it did not meet both deadlines voyager said it intends to pursue the recovery from 3ac and exploring legal actions it remains to be seen how much liquidity 3ac even has left at this point at 3ac had significant exposure like i just mentioned to terra usd and luna token which are now worthless voyager digital on the other hand is facing some major issue of its own.

It has drawn down $75 million of the emergency $200 million line of credit that was provided by Almeda Ventures. Voyager is listed, like I said, on the TSX. And like you just alluded to, it's down more than 75% in the last month. And what, 25% today, you said? Yeah. Okay, so when I wrote the notes earlier today, it's down more than 75% in the last month. And what, 25% today, you said? Yeah. Okay. So when I wrote the notes earlier today, it was 16%. So it just got even worse. It's 97% down from its IPO price. Yeah.

It's now a penny stock. Yeah. And they had disclosed a few, I think it was earlier this month that they had exposure to 3AC when the whole Luna thing started happening. And Three Arrows Capital said that they were in significant trouble because of it. So they had disclosed that. So that's why it's gone down so much in the past month. My God, this is a disaster. This is an implosion, dude. We're seeing basically who in the crypto industry was taking a lot of risks. And I don't know, at first glance, it sounds like Sam Bankman Freed is just the savior here.

Because he's given a loan to BlockFi and stuff too, right? Yeah, he's the crypto, he's the fed of crypto. Yeah, no, he is. He's like, he's just throwing money all over the place. He seems to have unlimited of it. Yeah, people can say what they want, but you have to give that to crypto is that they're not going to be bailed out. So they have, you know, in 2008, 2009, I know some of our listeners may be too young to remember, but there was a lot of people not happy with the government bailing out in the US, the amounts, the trillions of dollars that were used to bail out banks, essentially, that took enormous amounts of risks. And we're seeing it in an unregulated space here with crypto, but they're not going to be bailed out by governments.

I'm seeing the connection. Sam Bankman Freed is Robin Hood. So now he's like, I got to buy Robin Hood. It's got to be it, right? I think he's probably going to be reaping a lot of the fruits from that. It might not be for a few years. It might take him five, six years. It seems like he's got a long-term kind of mindset. So we'll have to see. But yeah, short term, it might look good for for all these investments that

he's made but i think long term he should be fine seems like the only guy that was wearing pants through all this because this stuff's getting a lot of stuff's getting washed out man like a lot of not just in like this speculative stuff like not just in the really speculative stuff like a lot of stuff's really getting washed out oh yeah it a, we haven't even discussed. I mean, look at the market today. What happened today, Simone? I was down. I was going to guess. I was probably down. It was down.

Very interesting. I'm just looking at my portfolio. Things are, it's like half and half, up and down. But no, you know what? Bear markets test your conviction. They test your willingness to stay the course. They test this like high flying junk. And I think you touched on this earlier, which I think we should probably just chat for a minute here before we wrap up, which is

high quality just takes advantage of this. Like high quality businesses come out stronger in hard times. You know, like really good businesses just eat up market share of stuff that's just not well capitalized enough. Their business model is not as resilient. The management team is not as experienced. The staff may not be as talented. Their business model may not be as resilient from a moat perspective. And the high quality businesses, like really great businesses that I try to position my portfolio in, I look at them and I go, probably just going to win. Like hard times make them stronger, right? And that's where you want to be. Yeah, because when times are good, they're usually, you know, they'll be doing well too, but they won't go into the excess as some of their competitors.

Oftentimes, they'll use those really good time to make the business even more solid on, you know, if they have debt, they may pay it off. They may refinance it. That's a good example you saw a lot of good businesses do that last year where the rates were so low that they took advantage of it instead of getting more debt they either refinance or they started slowly paying down because they had excess cash flow so they just paid down the debt a little bit and now obviously they're in an awesome position because they have lower debt or they have really cheap debt.

Where some other businesses that weren't forward-looking now are kind of stuck because they may have a lot of debt on the balance sheet. And it may be coming due in the next few years. And they'll be stuck refinancing at higher rates. And if they don't have a great business, that could really spell trouble for them. There's a lot of businesses like that, that could be in a lot of trouble when they refinance their debt. Another thing that comes to mind is how much private capital has changed in the past three, four months, like in terms of venture deals, like so many venture shops that were just,

you get a billion dollars, you get a million dollars, take $5 million on your idea that you haven't proven, you know, companies that have literally just a slide deck raising at a 50 million pre-money safe valuation. That's just like overnight, that's not happening anymore. valuation. That's just like overnight, that's not happening anymore. Right. And so these good companies that are well capitalized, there's less like ideas being funded, less like comp competitive ideas being funded in this environment. And it changed so quick. It was like three, four months. It just like all that junk has completely stopped. I wonder how that impacts too. Like we won't know the impact of that for a while.

Like that's a lagging indicator. But something else to consider as well. Yeah. And usually the really good projects, whether you're looking at businesses, you know, in technology or even the crypto space, the really good projects are the one that happen during bear markets. Because if they're able to be a good sustainable project or a good sustainable business when times are tough, you can just imagine how they'll do when times get better. Totally. Sequoia Capital, they sent out a big article to all of the companies that they have raised, like they have sent money to being like, tighten up, cut costs. If you can get through this, you're going

to make it. Here it goes. Sequoia, cut costs or face a death spiral. Oh my God. Jesus. That's what the environment is, right? You raise all that money. Yeah, you raise all that money from VCs and you have just like unlimited cash. Your business model doesn't matter because you just like, you just keep raising money

on these PowerPoint presentations and your team gets bloated. You're like, your operating costs become gigantic. You don't even have a good business. And so that's not going to work anymore i don't know if you've taken an uber lately yeah i did yeah the prices are a lot different they're not subsidizing your rides anymore it wasn't too bad but i think it's because i took it at 4 30 a.m i'll let you guess where it was for yeah i know what that was for that was to come see my ass in Toronto. Yeah, exactly.

Five o'clock train. Zero demand, but a lot of potential driver. That's what happened. Things are changing, but if you own good companies, you're going to do really well. Thanks so much for listening to today's show. If you are new to the show, or even if you're not new to the show, actually, if you're on the podcast player and you're not subscribed to the show, like if you're not like, I feel, I think it's on Spotify, you press follow on the show or subscribe on Apple

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