The Canadian Investor - Six stocks with a growing dividend and supply chain issues

Episode Date: October 25, 2021

We are back with our regular schedule! In this monday episode with talk about the following subjects: Canadian National Rail parting ways with its CEO Jean-Jacques Ruest Six companies that pay a dividend that should keep up with inflation Why so many companies are experiencing supply chain issues How to approach picking stocks vs. choosing low cost index funds Tickets of stocks discussed: CNR.TO, BEPC.TO, L.TO, HD, MSFT, AMT, DLR, EQIX, BIPC.TO, TFII.TO, GFL.TO, CP.TO, ENB.TO https://thecanadianinvestorpodcast.com/ Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital See omnystudio.com/listener for privacy information.

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We've got a fun, jam-packed episode for you guys today. We're going to talk about a few companies that have long runways for growth, yet still pay a dividend. We're going to talk about supply chain issues, and we are going to talk about index investing versus owning individual stocks. So lots of high requested topics today, and some thought provoking ones as well. Simon, let's start right away with probably the biggest news coming out of yesterday. CN Rail did report their earnings and the big announcement that the CEO will be moving on. Yeah. Yeah. I mean, I'm not really surprised because really, I even mentioned it on the podcast, I was questioning

some of the decisions that Jean-Jacques Courrette made, especially making that offer for Kansas City Southern, where the writing was on the wall that it would not get approved yet. He took some big risk to do that with some huge costs if it didn't work out. I mean, he got really lucky because the cost got offset by CP Rail in the end with their bona fide offers. But the regulators in the US have always not seen consolidation very kindly when it came to railways. So that was my big issue with them. But clearly, obviously, TCI Fund Management, they also thought that he was not doing a very good job with it. fund management, they also thought that he was not doing a very good job with it.

TCI fund management was getting savage. They even made an entire website called getcnrailbackontrack.com or something. I forget the exact URL, but they're making a pun about getting them back on track as a railway, which was pretty clever. This was a quote yesterday from Chris Hone, the founder and the guy who runs TCI Fund Management, the billionaire. He said, quote, dismissing the same CEO that the board put in place just three short years ago is a good start, but it does not address the fundamental problem of a lack of leadership, failed strategic oversight, and the vacuum of operational expertise at the board level. So he was a big part of this activism movement to get them back on track. I mean, hey, the stock moved up on the news that he was moving on. So TCI fund management is not to be confused with the great, the powerful TCI, the Canadian

Investor Podcast, which is interesting to point out. We are not billionaire hedge fund managers yet, Simon, but I expect that to come soon. Yeah, I don't think we have enough sway to make ceos of some of the largest canadian companies resign but uh yeah i mean look at the end of the day i think i'm pretty happy with the move i like i said i mentioned it before it's just i think at the end of the year we'll have to you do a review and you know cps and cnr will probably win the award of the most drama in most drama how many episodes have we started with their drama yeah at some point we were like even like basically not wanting to talk about it until there was actual development it was just a lot of back and forth but they probably

would win the award yeah they definitely won the award and there's still some time left in the year but they can bring that one in early all right let's move on to six companies that increase their dividend on a regular basis, but also have some runway of growth in front of them. And I think it's important that we discuss this because look, the people on this podcast, the people have spoken. You guys want to hear us talk about dividend stocks. And I get it. I really, I do get it. Dividends are great. But when we're talking about dividends, we want to own high quality ones that don't have their dividend at risk. We're not looking for yield traps. We're looking for great quality companies. And the dividend is a plus, right? The dividend is not the reason for us investing in it,

but it is a plus and a lever that management can pull in their capital allocation decisions, but not the reason to solely invest in a security. So Simon, do you want to kick it off with the first one? Yeah. Yeah. And the way I think we looked at them slightly different lens, we have a lot of different things, obviously, we agree on for me, it was really payout ratio was one of the big things. And I also tried to look at it, especially from a lens of someone that is close to retirement or retiring and trying to get some income that will keep up with inflation over time. So, you know, it's nice to have a nice juicy dividend, but if it never increases with the inflation that we're seeing right now, I mean, it's not all that great because especially if you're using that as income, you'll lose your purchasing power over time. So for me, the threshold was about 5% history of

increasing, at least recent history, a pretty low payout ratio. So room to grow that dividend over time. So those were the two biggest factors for me. And when you say 5%, sorry, just to clarify for the listeners, when you say 5%, you're talking about dividend growth, not yield. Not to be confused, right? No, that's it. So 5% growth per year. If you're a retiree, you may want to have at least a starting yield, I would say around 2%, maybe slightly higher just because you want to have a decent base. If it's 0.2% and growing at 10%, it's nice, but it might not be great for you if you're looking for income. So you have to balance those two. But like Brayden said, you want to be careful with too high of a yield because usually that's a warning sign. So the first one for me,

BEP, so Brookfield Renewable Partners. You can probably put BIP in there as well. If you're a retirees, those two would make a lot of sense. BAM is very interesting too, but their yield tends to be a bit lower. So it really depends what you're looking for here. There are different businesses as well. BAM owns big, obviously majority in BEP and BIP, but that's something to consider. So they currently yield about 3.15%. They've increased their dividend regularly over the years. They even have a dividend growth strategy that they state on their website that their goal is to increase it between 5% and 9% per year. So you have that fact that they're keeping up with inflation here. And if you look

up the data, it might not seem like it has increased every year, but it has. It's because they've had stock splits. So just keep that in mind because they've adjusted the dividend for the stock splits. But if you own shares before the stocks split, after that, you still got the increase because your total amount of shares was higher. Yeah, well put. Any of the Brookfield names are good candidates here. They all pay dividends, varying yields, infrastructure partners, BIP paying the highest yield, and then renewable energy partners, and then probably BAM itself. So can't go wrong there. They all trade on the TSX. They all pay very safe and growing dividends

and managed by world-class capital allocation teams. So thumbs up for me. I personally, as you know, listening to this podcast, I just own BAM. Simon owns BEP. It's all about personal preference. All right. So Simon has three and I have three. Now with my list, I was looking for high quality, durable, long runway, cash flowing machines that can afford to still reinvest in the business at high rates while paying this dividend. And so the reason I went for this approach is these are the types of companies in my mind that in 10 years, your yield on cost will be ginormous. So you're not going to have a huge dividend yield now, but if you hold them, like we are buy and hold investors, that is the way you can achieve massive yield on cost.

As the yield being paid out in 10 years based on your cost basis now can be absolutely ginormous for some of these companies that consistently raise their dividends and are, in my opinion, the next dividend aristocrats grouping. So right out of the gate, I chose Microsoft. And it was a useful exercise here because with Stratosphere's model portfolios, we have a US dividend growth portfolio of about 20 companies. And it forces you to think about really, really durable companies that also pay dividends. So Microsoft was the first thing that I thought of. And these three names are the three largest position allocations in that model portfolio. So that's why I chose them because I feel like they must have the highest conviction for me as a person who manages that model portfolio. So Microsoft yields less than 1% now, but has averaged over 7% dividend growth over the last three years.

Microsoft is one of those few companies that represents this rare opportunity, which is their business is getting better over time. The Azure cloud business is crushing it, gaining market share faster than all of the cloud competitors. And it is still globally in fairly nascent stages of adoption. So there is a huge runway. Now Satya Nadella deserves all the credit on the street possible. He came in as the CEO in 2014, replacing Steve Ballmer, and completely skated the business to where the puck is going. When he came in, Microsoft traded at like 13 times earnings. They actually had a PE of single digits in 2012. Can you believe that, Simon? It trades at now like 38 times earnings. The multiple expansions since he has came in has been wild as they transitioned the business to the cloud, software as a service, smart acquisitions, and nice product offerings from their core office,

three, six, five suite. They've also been really smart. Like Nadella has been smart by buying developer environments. For my programming friends, they know about VS Code, GitHub, those kinds of repositories. These are markets that Microsoft had no business in, and now they absolutely dominate. And it's funny talking to the software engineering crowd. And just in the last five years, their entire developer environment has moved to Microsoft, which Microsoft had no dominance in whatsoever. And now their entire environment, repositories, and GitHub are owned by Microsoft. So I really like what he has done with the business. And they're only going to continue to grow that dividend over time, but still be able to reinvest in the business in other ways.

Yeah, I think Microsoft's a great play. Actually, that's one of the companies that I have for my parents' dividend portfolio. So for them, the strategy was a bit like I mentioned, they try to get income on their dividends. So most of them are slightly higher payers, but I wanted to include a few tech plays and Microsoft is one of them. So I totally agree with that. So now on to my next name. So that's a name we mentioned recently with our tier ranking Loblaws. So everyone's familiar in Canada with Loblaws. If we have a few US listeners,

it's like Kroger basically. So the dividend currently yields 1.58%. It won't blow you out of the water with growth. It's a steady but slow grower. It's increased its dividend by an average of 5% over the past five years. So there's my 5% increase that I'm looking for. And what really pushed me to adding Loblaws to this list was that the dividend is very well

covered by free cash flow. So it's less than a 20% payout ratio, and it has tons of rooms to grow. That's without doing a thorough research about Loblaws. It's just looking at their statements here. But what that tells me is management, if they want to and increase that dividend, there's tons of room to do so. Obviously, people have to eat. They have a stronghold, I would say, in the grocery business in Canada. Obviously, there's other competitors, but especially, again, trying to get the lands from someone that's looking for a bit more income, maybe close to retirement, that's a company that I think would be pretty solid to have. It is solid. And it is the grocer that I would own personally if I was going to have one in my portfolio, which I don't. But I think that that would be the name. I like the management more

than Metro. I like their products and their stores better than Metro too. So yeah, I mean, they're only paying 20% out of free cash. So there is lots of room to grow as a steady staple like Loblaws. It's not going to be cyclical to the economy. People need to eat food. And the growth in Canada population-wise is only set to continue to increase. I saw that Canada is about to hit like 39 million in population, which quietly in the background, I've always thought of our population around 33 million and it's 38 and growing to 39 very shortly. Something to pay attention to. It's played into a lot of the things we're seeing here in Canada, which is short supply of housing and the growth of

Canada. So what can go wrong with a grocer? I mean, maybe famous boss words. You'll sleep well at night. Exactly. You'll sleep well at night. That's the one thing. So if you want to sleep well, I don't think you have to worry about law of laws. That's right. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission

free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized,

hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. Eric and Tower, ticker AMT, talked about this name a few times on the show.

It yields about 1.5% on the dividend, 1.66% to be exact. They've grown the dividend by 15% per year on average over the last three years. They are structured as a real estate investment trust. That's why you'll see the payout ratios on there. Because they're such a stable cash flow, So that's why you'll see like the payout ratios on there because they're such a stable cash flow or they are structured like a REIT. Look, when it comes to secular trends, Simon, data consumption is number one on the conviction of things going up. The connectivity required is extremely important. I think as we move to the next era of connected devices, internet of things. They operate almost 190,000

wireless communication towers, which is a baffling number, 190,000 wireless communication towers around the world to flow the telephony networks, mobile data, broadcast TV, radio, mobile data, broadcast TV, radio, and machine-to-machine communications. Now, this industry is also super protected with high barriers to entry preventing small operators from growing large and competing against these incumbents such as American Tower because of the regulatory environment that they work in. So that makes American Tower extremely durable. They have growth opportunities across the globe as well. We often forget how these businesses here that have such scale and product market fit, they might be powerhouses here, but developing markets don't have connectivity

with still like half the world not even being online, which is quite staggering to think about. So when I think about long secular trends, and I think about digital payments, when I think of the growth of cloud, when I think of the growth of connectivity and devices, it's just the start from my perspective. Yeah, yeah. And that's a great name. That's why I didn't put DLR Equinix or because I- Those are all prime candidates, yeah. Exactly, or American Tower. As an alternative, again, from that retiree perspective, DLR probably makes a lot of sense because it has a slightly higher yield, still increases mid to high single digits every

year. So that's an alternative, yields about 3%. So that would be digital realty trust. Yeah, exactly. That's it. But I don't think you can go wrong with any of them. Equinix is similar to AMT, grows a dividend a bit faster, a bit lower yield. So now on to my next name, another company we've talked a bit before, Home Depot.

So Home Depot, I think everyone knows about them. They currently yield 1.88%. Steady growth overall, but it really won't blow you away since it's a more mature business. But they have grown over the years. It's more organic growth. It's more kind of pricing power type of growth. The dividend has grown by an average of 19% over the past five years. And they're still growing to grow because it is under 40% payout ratio in terms of free cash flow and again I think they're pretty they might get affected a little bit if there's a recession or something like that but oftentimes what happens if there's a recession people instead

of buying a new home or something like that they may actually go to renovate their current home and if you're a homeowner, you'll know this. Even if you're not looking to do renovations in the near future, there's always something that's going to break on your house that you'll need to repair. And obviously, Home Depot is a benefactor of that. Can't go wrong with it. I think you can sleep well at night. Again, it won't blow you out of the water, though, in terms of growth. With it, I think you can sleep well at night. Again, it won't blow you out of the water though in terms of growth.

One of the best retail operators on the entire planet is Home Depot. So, I mean, another really rock solid – and there's a theme to these companies, right? They're extremely durable. They have extremely wide moats. They have network effects. They have pricing power for the most part. And they're fairly non-cyclical as well. I mean, Home Depot is cyclical with housing and stuff, but not like a home builder would be, right? So it's important to recognize some of the themes here. All right. S&P Global is the last name here in the third one on my list,

ticker SPGI. S&P is the same company that administers the S&P 500 index that many of you are very familiar with. So this and Moody's, Moody's Corp, ticker MCO, are the credit rating agencies. And they are absolute powerhouses. The global credit boom, the ESG investing thing, huge amounts of wealth moving into passive investing vehicles and assets under management for these things still present a very large market in which S&P can grow organically for years to come. I'm just looking here. S&P also pays a growing dividend. I'm looking for the number here, Simon. They have grown 11.33% over the last three years per annum on the dividend, and they yield about 0.6%. It's a small dividend. Don't get me wrong, but it is an incredible business

and I'm not willing to sacrifice business quality growth runways for higher dividend yields. If you have a long time horizon, these are the kinds of dividend plays you want to own. If you must invest in dividends, if you want to closer to retirement, you're going to want to own if you must invest in dividends. If you want to be closer to retirement, you're going to want to buy things that have higher current yields. But if you have a longer time horizon, you can build bonkers yield on cost. Simon, Barry Schwartz has come on the podcast. He was saying he met a guy yesterday that gets paid $800,000 per year in Royal Bank stock and didn't inherit any of it. Just dollar cost at a Royal Bank stock in his portfolio. And now the guy's in his 90s and gets paid 800 000 canadian dollars per year on royal bank stock

so his yield on cost you got to imagine is he has to be a former employee or something like that right that's what people were speculating about it must be a formal formal employee and then he did reply saying that it was all bought on his own accord. So it's shocking. Like maybe he's really concentrated and has a lot of money, right? But the yield on cost that he's generated from buying Royal Bank, his yield on cost is not like the 4.5%, 5% that shareholders buy if they're going to buy Royal Bank stock today. He's probably doubling his cost basis on the dividend every year.

And at some point in a future episode, I'll kind of go back and do the calculations for me, but I'm pretty sure that BEP, I'm close to 10% now. Yield on cost. Yeah, it's not pushing on 11% or 12%. So just to give people an idea, obviously I bought BEP when it was really well priced. It was yielding, I think, on average, 6% at the time when I caused basis. But it just goes to show growing dividend is

very enticing because you really compound over time that dividend payment. My TFI international, ticker TFII, cost basis yields like 13.5% per year. Yeah, exactly. Pretty good, right? cost basis yields like 13 and a half percent per year yeah exactly good right and like and i like that you kind of preface it really depends where you're at right it's much easier to say that when you know we're still pretty young here and that's why i was trying to balance between yield and growth especially with in mind someone in their mid to late 50s maybe not retiring right away but soon or someone that's

retired, like you'll probably want to look personally upwards of 2%. Be careful not to go too high. But at that point, you have less years, you want to use that as income, you still want the growth to keep up with inflation. So it's kind of making having that balance between yield and growth, I would say at that point. Absolutely. And that's important. Yeah. To double click on that is that when we mention ideas and like my three were like long time horizons, yeah, they paid tiny dividends now, but you could have huge yield on costs in the future is if you're, you know, retiree or approaching retirement, that's not the game you're playing, right? And maybe it is, right? Because if you're 55, in today's medicine, you are incredibly young and

have decades on decades of compounding still. So I would still lean more aggressive than, you know, most financial advisors would say, but it is important to recognize the game you are playing. I did have another quick list here of Canadian ideas because you had two. So the four to the six were US ideas. TFI International, GFL Environmental, any of the big banks, any of the Brookfield listings, the Railroad, CNCP. And then lastly, I was mentioning even Enbridge. Like it is a huge yield, obviously. And natural gas is going to rip. They have line three going now.

The demand for natural gas is going to be strong across the board with the coal closure plants across North America as well and conversion to natural gas plants. It is the transitionary fossil fuel for most power grids. As an insider pro tip here, I used to work in the Ontario power grid. And the good old nuclear pickering plant is shutting down in 2025. And that is two gigawatts of power that will need to be replaced by something. And I already know what it's being replaced with. They have baseload natural gas plants on the ready to take over some of that demand. And these plants basically sit idle right now with the exception of peak loading times. And who sells that natural gas? It's the monopolistic Enbridge that owns that region. So just another we don't we don't talk about energy much. And that could be an idea. Yeah. And look, I think Enbridge, the biggest thing for me is just if you want to own it, just stay on top of it just because they they have a lot of debt on the balance sheets.

And there's always been issues with the dividend being covered by by free cash flow. It's never been covered. No, exactly. That's I was trying to be nice. But, you know, they have huge tailwinds, like Brayden said. And I. It's never been covered. No, exactly. I was trying to be nice, but they have huge tailwinds like Brayden said, and I think that's a good point. Look, if you want to own it, that's fine. It yields a good dividend. They have a history of increasing the dividend as well, but something I would love to see from their management is also shoring up the balance sheet as they get that additional cash flow. is also shoring up the balance sheet as they get that additional cash flow.

Yeah, like it yields 6% and they've been aggressive with raising the div just to please the investor base, which has not been the right capital allocation decision. And that's why we've been kind of had negative sentiment on it is the capital allocation decisions to increase the dividend when it wasn't covered by free cash flow and they should definitely de-lever the balance sheet. Those decisions just weren't being made and they're just trying to please the current investor base. So I don't like that, Simon. I don't like that at all. And that's why we've been kind of hesitant to give it our thumbs up. But anyways, so now we'll go on to our next topic. I wanted to talk about supply chain issues because we've been hearing about that. I know pretty much everyone has experienced it one way

or another, either go ordering online and your order not arriving for several months or going in person to a store just to be greeted with empty shelves for whatever you're looking for you know often it's either back order with no time frame or like I said will arrive in several months I actually recently experienced this a couple weeks ago just before the wedding I went for a mountain bike ride just fell in a lot like really weird matter didn't hurt myself but the brake lever actually like snapped off and i have a fairly expensive mountain bike and you need i could have had like four different options to replace it so i was pretty flexible didn't mind

because they're cross compatible i call seven different places only one had it but the issue is they did not have the brake lever only they had this the full setup for the brake with the rotor along with the lever so instead of costing 50 or 60 dollars cost me 170 I had to do it because I even checked online no other places had it so if I wanted to do mountain bike and probably be able to do some for another month or so i had to do it now so that's just kind of a personal story brayden have you had any issues buying like something that just you know you'll have to wait you know it could be six months a year two years i think that we've just come to realize that, oh, you can't get it. It's like, oh, supply chain. Oh, COVID. There's just this natural reaction that I think we've all become really accustomed to over the last 12 to 16 months. And yeah, I don't have any super specific examples for you right now, but it's something you experience on an almost daily basis now.

Weren't you looking at Sea-Doos or something? Yeah, I was going to mention that. Okay. But like, dude, it's wild. And that's not just more of a supply chain thing. That was a BRP thing as well. Okay. thing as well okay but it's it's all so connected right because when you have these machines or like auto for instance or something like a cd that has so many components there's so many tiers of

suppliers right there's not just there's not just one supplier there's tier one suppliers who tier three suppliers who supply tier two suppliers who supply tier one suppliers who supply the oems and it gets really messy if one thing doesn't doesn't match up yeah because sometimes you'll have just one part right that's missing and that's why it's called a supply chain in a chain when a link breaks in a chain none of it works yeah that's it so there's several reasons obviously the ones we'll go over there's probably even more reason but these are the ones I've been reading on it. I've been listening to other podcasts. So these are the ones that I found were reoccurring a bit more.

So the first one, the elephant in the room, COVID-19. It's not the only reason, like I said, but if we go back when the pandemic started, everything shut down, right? So we had lockdowns everywhere. People were being laid off. Manufacturers were lowering productions because of anticipated weaker demand. Or in some cases, they were forced to close because there were mandated lockdowns. And if it wasn't essential, they were essentially told they had to close or reduce production. So production went down down but then the economy reopened very quickly probably quicker than most people expected and then it ran back

up so quickly that production just couldn't keep up you can't really try to lower production and then right away kind of ramp it back up there's going to be a lag that will happen so this was especially true early in the pandemic for things like just bikes, like I mentioned, gym equipment, outdoor equipment, furniture, just things that people were looking to buy a lot of outdoor experiences because people had nothing else to do. They couldn't travel furniture. People were stuck at home, so they wanted to make their house better because you're stuck there. Right. And one of the big issues is most supply chains, and Brayden, you can probably elaborate on that a little bit,

but they run on just-in-time manufacturing. So just-in-time manufacturing. Yeah, exactly. JIT dates back to the 1970s and was developed by Toyota. Essentially, this increases efficiency by reducing things like storage cost, but also is very dependent on everything going right. So in other words, the margin of error is not great here. And it relies on steady production, predictable demand, reliable suppliers, and no breakdown in the equipment or obviously in the supply chain.

So companies that were relying on this and had no backup plan in place are really the ones that are experiencing the most headwinds in terms of production. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help

if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details.

That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at

airbnb.ca forward slash host. That is airbnb.ca forward slash host. Right. There really is, I think you said it well, there's not much margin for error. And if one chain is broken like this, what we've seen with semiconductors being so important for every product that we produce, especially in auto, like when you mentioned Toyota, it affects everything. And when you have just-in-time manufacturing, it solves the problem of not having to run additional warehouses. And you will actually have parts loaded up and shipped right out of the plant in a sequential order. And they do it very effectively and efficiently. And it works. It works exceptionally well until it doesn't. Exactly. No, that's it. Really well put. And it works. It works exceptionally well until it doesn't.

Exactly. Now, that's it really well put. And obviously, like we're seeing that with Ontario, I think there were some announced either layoffs or reduced hours in some plants in southern Ontario because they're missing some parts. So that's essentially what's happening. So the complexity of the supply chains too will depend on several actors and oftentimes several actors located in different countries. So it's really important to keep in mind that not all products will be affected in the same way. So there might be things that you purchase that are all produced in Canada or North America. Those are less likely to have supply chain constraint.

Food is a great example because in a lot of cases, food is perishable and tends to come from North America. Obviously, a lot of it comes from Canada, a lot of it comes from the US, so you're less likely to have those same issues that you would have if something is coming from South Asia for example if we're looking at microchips or other items like toys which tend to be manufactured over there and then have to be shipped to North America usually by sea. So on top of this to compound all of this here is one of the big countries to manufacture goods for Canada and the US is China. And the Chinese government has been pushing hard to reduce carbon emissions. And because of that, they've been imposing brownouts because a lot of their electricity is still coal based over there. So what that did is actually

force manufacturers over there to limit their hours of operation, which affects the amount of goods they're producing. So this is just another factor to what we talked about earlier. Did you want to add anything to that part? I was just going to say, I think this is another reason why we have a perfect storm for natural gas prices this winter are going to be insane because a lot of this coal production, not just in China, this is across the whole world, is it is the transitionary energy source. Because if you run intermittent renewable energy sources, which means that the wind only blows when it's like, you can only generate electricity when

the wind is blowing from wind. When the sun is shining for solar, so those are intermittent sources, you need baseload power. If you're not going to use coal anymore, you're going to run gas power plants. This is just unrelated, but natural gas is going to just rip this winter, I think. Yeah. The other one more long-term, we're probably not there yet, is storage, right, for storing energy. Well, you're going to need it if you want to run those intermittent sources, right? If you want them to be big parts of the grid, you need storage. Yeah, exactly.

And the last big reason is the existing infrastructure just can't support the increased volume. And on top of that, there's a lack of skilled labor. So we're seeing this a lot more in the US, but to a lesser extent in Canada. So you must have seen in the news, Braden, high av ports in the US just can't keep up with the increased volume. I read that it's actually not unusual for ships to sit for up to a week while they wait for their cargo to be offloaded. So the ships will sit within a few miles from the port until they get the green light to be able to offload their cargo. So obviously that's not efficient.

On top of this, when containers are offloaded, they tend to sit there because there's a lack of land shipment options and more specifically truck drivers for example like we mentioned earlier that started well before the pandemic by the way that's also one of the big reason that joe biden just announced that the la port would be running 24 7 to help the backlog i think that's more of a temporary fix it'll probably help in the short term but at some point people get burnt out you can only do this for so long so i think the real the real solution here is probably to have better infrastructure in the long term and the last thing i'm gonna say about this part is i really wonder how retailers will do during the christmas season because a lot of people might not realize that retailers like Amazon, Walmart, Best Buys are all retailers that hire temporary workers during the holiday season to really keep up with demand. So for deliveries, for example, people shopping on Amazon, I know I will, you probably will too, Brayden,

will there be an increased delay or maybe an increase in prices to compensate for the high cost of labor? Yeah, something's got to give, right? It can't always just add up for no reason. So something has to give. On your thing about the ports there, I saw a graph about market share in transport and trucking and rail have taken significant market share from sea. I mean, obviously, if you're... And sorry, and air is taking significant market share from sea. So those three, air, trucking, and rail are all gaining market share while sea decreases. So I mean, obviously, it's still a very important part of the global supply chain is ships, but we're seeing it be trucking and rail, particularly, taking a lot of the load. No pun intended.

Yeah, and the issue with air is then you'll probably get increase in prices, right? Because it's not as cost efficient. Yeah, and emissions as well, because those are some of the big polluters. Having said that, I wanted to just finish this segment by having a look from the lens of investing in businesses and how it could potentially affect the business you invest in. So not all businesses will be affected by these issues equally, but I would say that most businesses will be affected to one way or another, even if the company you invest in mostly sells services and they don't normally, like they won't have goods. I'm sure they buy equipment, they may buy computers, they may need to buy new things

that relies on those supply chains and can potentially affect them. Here are a few things you may want to look at when you're reading the earnings report, the annual reports, listening to conference calls. Where do most of their sales come from? So where are they selling their goods? That's the first thing. Where is the manufacturing done for their products? Make sure you dig into the suppliers because like Braden said there could be several layers of suppliers so you may think a supplier is from country x but there's actually it actually depends on another supplier that's from another country so you'll really have to dig in to understand a bit more where the different suppliers are actually coming from because like we said if it's a complex

are actually coming from because like we said if it's a complex product just one missing part like cars could create some delays what parts of the world are you know the supplier is located in but also compare that where most of their sales are going it does the management team have a clear plan on how to resolve these going forward and how to avoid this type of situation in the future and that's probably the most important here it's one thing that they didn't have a plan or not a big plan before the pandemic started but at this point i think to me any company that is selling products should be looking into the future one two, two, three, four, five, six years in the future, and just have a plan going forward. Because some of these fixes may not be doable short term, it requires investment, it may require new plants, it may require a lot of different things. Yes,

it's more of a long term thing. But if you're a long term investor, and you believe in that business, that's something you'll want to make sure that they have on the radar i have a solution simon we all just stopped buying so much shit how's that how's that solution that's that's a good solution yeah definitely i mean i'm not sure everyone would be on board with it but uh i mean yeah it's yeah it is uh it's one of the solutions right yeah it's definitely solution yeah no i've heard that reading uh and listening to other podcasts where they were saying you know a lot of it could be just increase recycling increase the reuse of things that you're not long no longer using other people could use it so um yeah like i was at the i was at the halloween

store the other day i'm going to halloween party next weekend and i just looked at it i was like this is there's so much junk that is going to be thrown out in approximately one week and one day and i'm like screw this i'm gonna go make my costume and so that's what I'm going to do. But there is so much crap that people just, humans thirst for buying more crap just never seems to end. All right, let's switch gears. I thoroughly enjoyed that segment though. All jokes aside, Simon, it's something that, you know, people are talking about and like supply chains and, you know, it's become a bit of a buzzword even though there's something to this right um so i think it's worth touching on i think probably the biggest lesson of all of that is it's

not that simple yeah exactly there's complexities that go into it and and that's why it's called a chain right there's there's interweaving parts and one thing breaks and it just doesn't work. All right. I wanted to talk, I had a thought provoking tweet that I read by a guy named Mostly Borrowed Ideas. He's a great analyst and he's anonymous, but he writes a newsletter. And he had an awesome thread on buying individual stocks versus buying index funds and sleeping at night. And it is really thought provoking. And it's something that I think I really wanted to share because I thought about it a lot and Simon might spark some interesting discussion. So I'm going to read his segment of his letter here. So this will take a minute or two and,

and it's really interesting. And then we can compare our thoughts on this. So starting quote, one of the questions most investors ask themselves, at least at some point is whether they are indeed good investors or all their past success are just random luck, which by definition may not persist. My basic assumption is I am probably not a great investor. Even to be average, it will require a lot of work for me. A common retort is why even bother investing then? If I am so unsure of myself as an investor, shouldn't I just index? And when he says that, he means just buying index funds. This feels like the equivalent of telling kids there's no point of playing basketball because you're never going to make it to the NBA. I doubt most NBA players

knew before touching the basketball that they were going to be very good at it and it might be possible to make it a profession. What about all the kids who don't end up in the NBA? Well, many of them still love the game just as much and follow the sport anyways because it's so much fun even if they're not good at it. It may feel like a cavalier comparison, especially since investing is not a game. There is a real cost of failure in this endeavor versus turning out to be a bad basketball player. I think about how it would feel if after 30-40 years I find myself underperforming the index by 1-2%. Would I think I just wasted my life investing? It's hard to know how you would feel beforehand, but I have at least convinced myself it wouldn't

be a waste. Investing is truly my lens to understanding the world. Because of investing, I do feel more connected to the world around me. We interact with businesses in our lives and understand how they make money, their incentives, and who can survive and why they are the kind of intellectual exercises that provide me an inherent utility that will be missing from index investing. I do believe if you don't think such an exercise itself has value, individual investors should strongly consider indexing. We can democratize investing as much as we want, but I don't think alpha will ever be democratized. What most individual active investors should attempt is increasing income and their savings

rates so that they become somewhat immune to underperforming the index. What most individual active investors should attempt is increasing income and their savings rate so that they become somewhat immune from underperforming the index. This guy's a good writer, right? Yeah. Yeah. So far, I mean, I honestly, I kind of like everything he's said so far. Yeah. Yeah. There's a lot of good nuggets in there. So that was the excerpt I wanted to grab from his writing because it's important. And I think that not only is it very powerful and eloquently put of what we are trying to do here, right, Simon, is you and I,

we might think we're pretty good investors and we've had market beating returns over the years. Does this mean that we think we're some sort of super geniuses? Absolutely not. I think what our main edge is that we think in years and not quarters, that's probably the main reason of why we've had success. But the point of his writing here is to ask yourself, why even bother spending time researching companies and managing a portfolio when you can buy the index and achieve 10% historically per annum returns by owning an S&P index fund, which you can now do basically for free with no fees. You buy an ETF for 0.05%. This is basically free. So it leaves a very good question. If I randomly decided at some point, Simon, I didn't want to

spend my time doing this anymore. I'm just going to go play some golf, live on the beach, work on my passion, my business. And I'd be happy to go do fully in passive and index investing. But that's not me. And it's not you. And it's not many of the people listening. I can't imagine my life without investing in individual businesses, as corny as that sounds. It's exciting. It's competitive. It's something I thoroughly enjoy and now do for a living with stratosphereinvesting.com. It forces me to pay attention to the world, study change, bet on the future. So this was a pretty awesome piece of writing. And I think it addresses a lot of thought-provoking questions about why we do this and why we actually like doing it in the first place. And it touches on some important

points that investors face on a daily basis or especially early in their career or early in managing DIY portfolios, which is self-doubt and imposter syndrome, which I think everyone comes across at some point in their career or managing their own money at some point. So it really touches on some important points, which is passive investing is great. It's a new tool that anyone can use with an internet connection. But at the same time, if you like studying business, if you like owning individual securities, it's, it's worth it more than even if I think I can beat the market by a couple of percents, because I would be doing it no matter what.

Yeah. And I think we've always, I've always said to me, like it all comes down first, obviously, do you enjoy it? That's one of the most important thing. Second thing, you have enough time to do it. And the third thing that he didn't really touch on and I think should have been in there as well is it doesn't have to be one or the other. So you can, you know, even if, say, your returns are not quite what the market are, but you still enjoy doing it, maybe you can consider weighing some of your portfolio in index funds and still keeping a part of it that's actively managed. You don't have time to, you know, keep up with 15, 20 companies. That's fine. Do five, put the rest in an index fund.

You'll still be able to do those five companies stay up to date on them make sure you stay on top of them so there's really to me it's not like one or the other to me is just there's individual businesses all of them on one end full index investing on the other and then i think most people that are listening to this podcast are probably in between that spectrum. Doing some sort of hybrid. Exactly. And I think as long as I think a lot of it is just knowing yourself.

And I like your last part because you know what you enjoy doing. You like doing it. I enjoy investing, but I've noticed in the past year or two, I had to reduce some of my holdings and put a bit more in index funds because, you know, I put work for the podcast. I like mountain biking. I have hobbies. I have a wife that I want to spend time with. There's all these competing things for my time. So I had to make the decision to adjust my allocations a little bit accordingly. Yeah. And that's a good point. Who wants to stay on top of 50 companies

if you don't do this full time? It's a lot to keep on track of. So if you had maybe 50 or whatever allocation percentage to index ETFs and the rest in a few securities, even if you looked at your brokerage account and you had four holdings, you're crazy diversified. And this goes back to when people go buy index ETFs and they own like 10 different index ETFs. There's probably so many holdings that overlap anyways every holding is overlapping right so it's like you can buy one global index etf or one s&p 500 index fund and have one holding like 100 of your portfolio is allocated to one holding and be way diversified than me yeah oh yeah exactly yeah like way way more diversified because you own a piece of 500 companies. If the, if it's the S and P 500, where I own 14 individual securities.

Now these are fantastic businesses from my perspective. And I sleep great at night owning them because you know, they're, they're durable companies and they're not day trading crap. They're durable companies and they're not day trading crap. So there's lots of interesting thought-provoking ideas in his thread that I really wanted to touch on. So that does it for this week, guys. That was a fun chat. Lots to talk about. We're back.

We're back full time doing this and lots of good content coming out. We are number one in Canada for the category on the podcast. Yeah. Hell yeah. So let's keep going. Share this podcast with a friend. We don't ask this very often, but every once in a while, I like to remind you guys. If you are on Apple Podcasts and you can give us the five stars and leave a nice little

review, or if you're on Spotify, you can press the follow button on the right if you're not already. It really helps us grow the podcast and then you can share it with a friend. Don't ask very often for you guys to do that, but it really does help us grow the show. Guys, I just launched Stratosphere Investing's new platform. You can check it out and use it completely for free. No more 14-day trial when you get kicked off. Stratosphere, all the analytics platform, find all the numbers that Simon and I talk about on the podcast when we're looking at their growth rates, when we're looking at their margins, when we're looking at the key ratios that we discuss on a regular basis on this podcast.

It's all for free at stratosphereinvesting.com. We'll see you in a few days. Peace. The Canadian Investor Podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.