The Canadian Investor - The investor who made 325x their money

Episode Date: May 6, 2024

In this episode of the Canadian Investor Podcast, Braden shares his observations from his recent travels across Europe, focusing on the evolving landscape of investment opportunities and the significant shift in credit card adoption in Spain compared to his last visit. He highlights the dramatic increase in credit card acceptance, noting the ease of transactions even with the smallest vendors. Simon dives into the mechanics of how Buy Now Pay Later (BNPL) companies generate revenue and discusses the intriguing findings from a recent New York Federal Reserve study. The study outlines how the adoption of BNPL services varies significantly between financially fragile and financially stable households, shedding light on consumer behavior and financial health. Wrapping up the episode, they explore the investment philosophy of renowned investor Norbert Lou. They also discuss the breaking news announcement by the US government to potentially reclassify marijuana from a Schedule 1 to a Schedule 3 drug, examining the potential ripple effects this major shift could have on Canadian cannabis stocks.  Tickers of stock discussed: WEED.TO, ACB.TO, V, MA, AFRM, PYPL, SQ NY Fed BNPL Study Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Web player - The Canadian Real Estate Investor Sign up for Finchat.io for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. The Canadian Investor Podcast. Welcome into the show. My name is Brayden Dennis, as always joined by the visionary, Simon Belanger. Buddy, it is good to see your face. I see the show goes on as always. I'm on the road recording this show, but it's good to see your face.

And it looks like we have lots of FinTech for the discussion today. Yeah, I think, yeah, we do. So I think it'll be fun, fun episode. It's been a while. I mean, I had Dan Foch, the one and only, take your place for an episode, but glad to see you back and, you know and having fun in spain right that's right you guys settle the old uh the age-old debate stocks versus real estate yeah it's solved now right like it's uh i mean we both pretty much agreed on most points

it was a very balanced discussion so i think uh dan and i align a lot of topics so for those who know us they won't be really surprised yeah it's funny with these kinds of things it's like which one's better it's like well how long do you have first of all it depends and second how long do you have so i think that that's good that you guys split up two episodes uh one on our show how much money do you have and how much money that do you have maybe that Maybe that's part of the it depends part. Yeah. Yeah, exactly.

All right. Let's kick it off with just a little bit of anecdotal evidence or what the smart money will call boots on the ground research or channel checks. I'm going to go with channel checks so I can sound a little bit more sophisticated. I'm like the Winnie the Pooh meme with the suit on. That's me right now. So the last time I was in Spain was in 2018. And you and I, how we operate, how the listeners of this podcast operate, first thought is what can I learn? What's changed? Which companies have a big presence here? Are there any nuanced local info that investors might care about? It's like, if you listen to this podcast, Simone, there's a good chance that you get off the plane in a new

country and start thinking about different companies, companies that have surprisingly large presence, companies that don't have a presence at all. How can you make money in this situation? The people in this podcast, that's the stuff that they look for when they get off the plant. Would you agree? Yeah. Yeah. That's what I do when I go to a new country, even the US sometimes, right? You can forget that. You'll see a brand and you're like, what the hell is this? I've never seen this before. But going to somewhere like Spain, I've been to Scandinavia, same thing over there. Obviously, there's brands that you see all over the place. Like there's McD's everywhere, obviously. But it is interesting

to see some of the brands that you've never seen a home or sometimes it's it is the same company but they just have a slightly different brand over there that's more of a specific market fit that's right it's like the first time i made the connection that this was before kush tard had rebranded the Canadian convenience stores to Circle K. And then I made the connection that like, I'm down in Florida and I see so many Circle Ks. This is like probably by footprint, the most successful, you know, convenience store gas station combo here. And before I had made the connection that they had bought that a few years prior, you know, you make these kind of connections. And speaking of that, actually, Carefour, I might be saying that wrong, the French from France.

Yeah, Carrefour. Carrefour. Yeah, they're a large- They're big in Europe, yeah. Yes. Not C-store, but kind of like grocery store. But grocery stores in Europe are different than grocery stores in North America. And I see those a lot here too. So anyways, that's a roundabout way of me getting to since 2018, since the last time I was here. Oh, I do have a question regarding Carrefour. Go.

Is the CEO as well loved as Galen Watson? Galen Watson. Yeah. I'll have to ask. I'll have to. Galen Weston. Weston. There you go. Yeah, he's loved in Canada, huh? He's just like, people hate him, but I kind of like him. I don't know. Maybe that's just a capitalist in me. Yeah, he kind of like, this is his own doing though like he's probably the one that wanted to be the face

of blah blahs out there where you never hear of the ceos of the other big grocery chains in canada you only hear about him because everyone knows his face right he needs to hire the same pr firm that zuck has been using to get him on all these podcasts and make him seem all likable. He's on a big PR tour, it seems to me. No, that's right. So back to Spain, credit card adoption here is the first thing I noticed. So when you travel, South America was like this when I was there in 2019-ish, kind of just before the pandemic. It was like a big deal that like, hey, credit card adoption is a new thing here.

Hey, we accept credit cards. It's like, come here, tourists. We accept credit cards. Europe's always kind of been somewhere between North America and that, where it's like there is widespread credit card adoption. North America and that, where it's like, there is widespread credit card adoption, but it's not surprising if they don't take credit cards, so you should have cash on you. You know what I mean? It's like, you can't just leave the house with Apple Pay and be fine in Europe last time I was here. And especially even in Spain here, dude, you do not need cash whatsoever. I'd say, I will go on a limb and say you need cash

less than even at home. The small, tiny vendor, the cabs, the small, tiny shops, the barber shops, even at home, I know I need to bring cash to the barber shop. They have a point of sale machine just ready to go. I'm not surprised if you just have someone bustling and you're like, oh, sorry, no cash. And they just whip out a point of sale machine at this point. It is widespread credit card penetration and adoption that I was very surprised to see compared to the last time I was here. So I looked into it a little bit. I couldn't find any Spain specific metrics, but the European Central Bank disclosed that just in the back half, in the first half of last year, you saw 15.6% increase to 36.5 billion

transactions in Europe. So the number of transactions is rapidly increasing in Europe. I suspect that that number is double here in Spain, just based on my anecdotal evidence of before and after. And I've been the kind of payments Visa MasterCard bull for a long time. And I thought that the post-pandemic would accelerate these what i'll call accepting of digital payments but gonna continue to adopt it i suspected that that would you know bring forward that kind of pulled forward demand by like three or four years and i think that we're playing seeing that play out. And I went on FinChat because V3 is so much better at this kind of stuff now. And I asked if there's anything in the Q2 of 2024 that they have a weird fiscal so that this is the earnings report that they had a couple of days ago for Visa. And I asked, can you specifically

talk about if they've discussed credit card adoption in Europe? And it said conversion to domestic cards and Visa was a point of discussion in the conference call. They've been actively converting domestic-based cards to Visa credentials across Europe. From 28 to 2023, over 20 million credentials that primarily ran on domestic networks are now converted to Visa debit credentials with millions more currently in the process of being migrated. It says that there's been huge growth. It's the fastest segment in the UK, largely growth from FinTech clients. And they're seeing a huge demand for Olympic and Paralympic branded credit cards ahead of Paris Olympics as

well, which is interesting. Seeing huge partnership renewals in Portugal on the prepaid side, the credit side and the debit side, as well as the rest of the European market. And that they processed 55.46 billion transactions in the quarter, which represents almost 11% growth, primarily and partially attributed to increased credit card adoption in emerging markets and through Europe. So I look at the report, and this is not meant to be a Visa discussion or a MasterCard discussion, but I think it's really important when you travel and when you're, you know, kind of on the road to be thinking about these things because we get so

caught up in like, how can a visa mastercard grow back home? It's, you know, peak saturation at this point in terms of adoption and, and, and stuff like that. And that's just not true across the world.

It's just not true at all. There's, they estimate that they have a 20 trillion of transactions that they're going to be moving over from cash, check, money order, all this stuff that they think that they could be able to convert over the next 10 or so years. So I just thought that there's a two-parter here. It's one, try to pay attention to these kinds of things if you're on the move. And then two, I am still very bullish on these two companies as well as just the digitization of cash across these emerging markets and these countries that have just been flirting with it previously. So that's my opening segment of the day. Yeah, I know. I think

it's a good point. I mean, at the end of the day, Visa and MasterCard and just electronic payments in general, it tends to be a good method to lower friction for consumers. I think that's why it's so popular. Let's be honest, there are advantages with cash. One of the biggest advantages with holding cash and paying with cash is if you're concerned about privacy, clearly the most private way of payment, that's going to be cash. But with whichever forms of payments, and I've been really kind of reading books on that, and I'm kind of fascinated is whatever form of payment you think about, there's always going to be a trade-off. And at the end of the day is which trade-off as a consumer, are you the most interested in? And clearly a lot of people, and I think you and I included, I mean, value the convenience offered by these payment system, like a Visa or MasterCard. Yeah. It's just such a good product. And they did total transaction volume. So they did 222 billion transactions in the trailing 12 months.

And that represents over $15 trillion. If I'm reading this correctly off the FinChat KPIs. That would make sense, I would say. Yeah. Like that is at first at first i thought you were saying like 200 something billion in actual like in total transaction volume or in sorry in uh the gross payment volume i was like oh that seems a bit low but yeah no it definitely makes sense yeah total transaction volume uh Yeah. Yeah. So it's 15,000 billion based on the number here, right? So we don't have a lot of numbers in these charts that typically hit trillions of dollars, unless you're talking about like huge asset managers or like a visa KPI. So it's kind of nuts.

No, I think that was a great segment. As do-it-yourself investors, we want to was a great segment. 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 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. So the next one I'll talk about is a really interesting survey I came across. So the New York Fed, so the New York Federal Reserve in the U.S., they did a survey on why consumers use Buy Now, Pay Later. I will add a link in the show note. Well, first of all, Braden, question for you. Have you ever used Buy Now, Pay Later? I have not. Have you? I've never once done the checkout. Sometimes it looks so appealing. It's

like, just pay this. And then I'm always just very like, what's the catch type of situation. So I've never done it. Have you? No, I've never used used it i've seen those buttons right there's uh i think there's uh like there's a bunch of different companies but after pay firm exactly after pay uh block as its own i think they i can't remember who they bought but remember there was uh i think it was like two three years ago they made a big acquisition for one of those companies yeah they bought the australian one which after pay also is i think it is after pay i think that that's what they bought they bought it for like 44 billion or something which was such an overpay uh they they're they did a buy now pay later with a bunch of equity and i think that it didn't work out for their shareholders, ironically.

Yeah, exactly. So there's Block or Square. And then PayPal also has its offering. And I'll kind of forget about PayPal and Block just here. Because I want to focus a bit more on the pure play, buy now, pay later. And first of all, I think I wanted to go over before I get to the survey on how these companies actually make money. Because I think a lot of people don't really know. So the first main way I think, or, you know, they get a lot of the revenues from merchant fees for offering their services. So the reasoning here

is that merchants might not be able to make the sale without the user using buy now pay laters. So fees here are quite high and you'll be surprised especially compared to like visa and mastercard or credit using credit cards because you always hear you know merchants in canada at least saying that credit card fees are so high and they're talking about the entirety of fees not just the fees that are charged by visa and mastercard and i think typically they're like two to three percent. I think that's the kind of numbers that are being floated out there. And by now,

for a total. Yeah, total. Yeah. Yeah, depending on... I think that's about, yeah. We actually did a content piece on this and I can go mass into detail on another episode,

but it really just depends on interchange fees. So yeah, you're looking at around 2%, a couple extra basis points, a little over 2%. And line share of that is going to the merchant bank and the acquirer bank. So that's like whoever is issuing the credit card. The payment rails are typically only getting around 0.12 to 0.14% depending on the interchange interchange fee so just for context on like who's participating in that fee by the way i couldn't remember who it was i was trying to

remember who the other vendor was clarna that's another big no that's the one because i had like karma in mind but i like i know it's not that's i don't want to They're the other big player. Yeah. I think they're privately held. I think they're not publicly listed. And it's funny, though, just a quick note on the credit card fees is that there tends to be a lot of focus on Visa and MasterCard when you see that in the news and not on the actual banks it's kind of funny that even the merchants I feel like oftentimes are not fully aware how these fees work because that's how I mean my perception every time I see an article it seems to always kind of feature Visa and MasterCard and not the actual banks but to give more context here the merchant fees are in the five to six% range for buy now, pay later. So these are massive fees.

Oh, yeah. 5% to 6%. Whoa. 5% to 6%. The reasoning, obviously, is that I think a lot of the users, and I'll dig into the New York Fed survey, but a lot of users that are using this may not be able to get a credit card, for example, or may just have trouble getting access to credit. So having the buy now

pay later gives them the opportunity to make a sale that it would otherwise not be able to make. Jeez. Okay. So I think, yeah. So I think that's the reasoning why, because if you're, you know, people might be wondering like, wait, if you're a merchant, like why the hell would you like offer this payment option? Clearly, they're gaining value. Clearly, they know that it's worthwhile if they're offering it. They also make interest on loans. So these are loans offered by buy now, pay later services, typically in longer term. I know a company like Affirm Holdings has like actually in their slide deck kind of a section with all their services and then one excluding Peloton financing. So it gives you an idea how big like Peloton is in terms of their business. They also have late fees,

not all of them, but if users, some of them, if users don't pay their full installment on time, they can be charged late fees. And depending on the service, they might also have service fees that apply. So they do make money. And I guess the last way is they will also package their loans out to a company that will buy them. The servicing will still come from a firm holdings in this circumstance, but they'll also make money on selling those loans out to third party businesses. make money on selling those loans out to third-party businesses. It's always the types of services that prey on what this survey is calling financially fragile people that keep them in a cycle of being financially fragile. And it's really easy to just be like, okay, these companies are scumbags and that kind of thing. But the thing that people, and I'm not here to debate that point. I think that

for the most part, a lot of these, what I'll call predatory services are scumbags, especially like payday loan type situations. I think that that's very predatory. But with these types of things and these types of high fees, the one thing we have to remember is with this types of capitalism is they need to be compensated for credit risk. That's how the system works. It just is what it is. You have to be compensated for increased credit risk. Like that's just how these businesses have to function. And that's how credit has worked since the dawn of time in terms of assessing credit risk

and issuing compensation in terms of a rate for how credit worthy or how risky that loan is. And so you're just seeing that play out into different types of consumer applications in this case of buy now, pay later. Yeah. And what they do, people might wonder like, okay, well, if they're not lending and I'll describe what they identified in the survey as financially fragile. But if companies are not lending to these people, but then buy now, pay later is, why are they doing so? Well, their argument here is that they actually underwrite the loans or these installments on kind of a case-by-case basis, on the loan-by-loan basis,

based on what they're actually purchasing. So that's how they say. And obviously they use algorithms and AI to, you know, put in a bunch of different variables to see how likely someone is to pay back that loan or not. But, you know, it's an interesting point. And clearly to me, I think there is a risk here for buy now, pay later loans, because first of all, it doesn't show up on credit bureaus. That's a really sketchy stat, isn't it? Yeah. Yeah. So that is one thing. And people actually in the survey, that's one thing they

found is people were using it thinking they were building their credit, which that's one of the things the New York Fed survey said. Clearly, there's a misunderstanding with how these services work because that's actually not how it works. So I think there is definitely some more education. But also, you know, you do wonder if these kind of services get too big, and there's still not much regulation around them. You know, I don't want to be alarmist, but this could cause some problems down the line, especially because the write off rates or the delinquency rates are definitely, you know, they're not low. I mean, they're not like crazy high or anything, but they're definitely in line with credit card defaults rate right now. But again, depending how the economy goes, it'll be interesting how that kind of trends going forward.

But the survey, to get back to it, it was done on a thousand household with 200 of them reporting using buy now pay later. They identified two types of respondent, financially fragile, which are those that have one of the filing criteria, credit score below 620, have been declined for a credit card application in the past year, have fallen behind 30 or more days on a loan payment in the last year, and the rest are put in the financially stable category. That's a pretty wide range to be honest, like a credit score of 620. Let's just say a credit score of 630 is not that good, let's be honest. I don't know what you think about that. This is like two categories. It's

about that this is like two categories it's definitely financially fragile and then what they're calling the rest is stable is certainly a scale uh that is not being not being investigated further so i mean it is what it is it's important to know that with the survey yeah and they had to define it some way so i don't kind of criticize them for that they had to define it some way. So I don't kind of criticize them for that. They had to place the line somewhere, and that's where they decided to do it. And one of the key findings is that it's rare for users to use Buy Now, Pay Later a single time after trying it once, regardless of the category they fall in, whether it's financially stable or financially fragile. They found key differences between the two types of users, though, for the users that have used it at least once in the last year. So clearly out of the 1,000 respondents, it would be the 200 actually reporting using it at least once in the last year. So this is the data that I'll be talking about right here.

So financially fragile households are more likely to be repeat user with 60% using it five times or more in the last year. That's compared to 18% for financially stable household who have used it only once. So they're less likely to be repeating users if they're financially stable. One of the key findings also found that the financially fragile households were more likely to use buy now pay later for smaller everyday purchases, whereas stable households were more likely to use it for larger purchases with the main goal of avoiding paying interest. So for example, you know, not wanting to take a loan out, just doing the installments, and they're not paying any interest because they're doing the installments and they're not paying any interest

because they're doing the installments on time for installments are done so they're using it as a way to save money so that's a pretty stark difference the financially fragile household are more likely to make small and medium purchases that they could otherwise not afford and the biggest barrier to higher adoption for that buy now pay later is using it for the first time so those are the key findings that they found so it's a bit alarming i'll be honest because that's the underlying data and obviously a thousand people surveyed 200 using it is not a big sample is relatively small but it does paint a picture that, you know, people who are less fortunate are using this more and more just to make ends meet.

Whereas people that, you know, are more stable are just using it as an additional tool to kind of make purchases that they could make anyways using other forms of payments, but they're just using it as a tool. I don't know what your kind of takeaway is from that. I just find it funny how it's always the types of purchases where it's like, I shouldn't, I certainly should not finance this item is when I see the buy now, pay later button show up on my checkout. is when I see the buy now, pay later button show up on my checkout.

It's like, it seems to be like, for me, and I see that badge, I'm always just like, I don't really need this, do I? This is something- Yeah, it's a reminder. Yeah, this is something I really don't need. That should be my new rule. I see a firm pop up on the screen and I have to wait 24 hours before I buy it. No, I mean, it certainly is. I think you and I have referred to it as buy now, worry later in the past.

I think you coined that term here on the pod. I couldn't agree more. That's my sentiment towards it. But I think it's crazy that it's not connecting back to credit bureaus as well. it's not connecting back to credit bureaus as well so that like yeah household debt number doesn't even include some things like this where someone could be financing a bunch of junk over the next three payments that they have due yeah and it's still like buy now pay later is still relatively new as well so i think and that's one thing they mentioned the survey is they saw a stark change between 2021 and kind of recently on the usage just because people are getting more used to it.

So that's something that will be interesting revisiting down the line as there's more and more data and people may feel more comfortable using it. Maybe I'll finish for financially fragile households. Hopefully, you know, people kind of use that more as a last resort. I think it's certainly better than, you know, payday loans, like you mentioned. So it's a better option than that. But clearly, I think, you know, people should be careful about using it too much because I think they can really get into a kind of vicious circle. If you're constantly financing everyday expenses, you know, maybe a better discussion with yourself would be how can I make more money or how can I reduce my expenses to get out of that? Or do I really need this crap?

That's what I ask myself. Well, I mean, yeah. I am so anti-stuff. That's my thing. Yeah, I mean, I think some grocery stores in the u.s even offer this how like i at my checkout like in person yeah you can you know where you can buy like your groceries online get it delivered and stuff i think i'd have to validate that but that's what i've i've heard anecdotally so that's why i think it becomes a little more dangerous and a necessity. Because then it's necessities coming in.

Yeah. Which you're just using it to try to make ends meet. But I think for most people. And really financially illiterate folks could use that and then go spend it on something else because they're like, I got this money and I'm financing my groceries. They're not due for another month. Yeah. Yeah. So, well, I have to see. But no, I think it was an interesting article.

Like I said, I'll link into the show notes. For those interested in these kind of studies, the federal reserves in the US, the different ones, like all have kind of areas they focus on. And they do, like, I'll give them credit. They do very good work. And sometimes you can find some really interesting studies. Unfortunately, in Canada, we tend to not have that same kind of data.

But I think it's safe to say that it's probably similar in Canada in terms of usage. I suspect, yeah. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees.

They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. 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. Let me talk about Norbert Liu. Next topic of the day. Norbert Liu, when talking about him, famous investor Joel Greenblatt said, to this day, quote, to this day, I hand out the first three write-ups he wrote on the Value Investor Club Forum to my students at Columbia to show them what a brilliant, concise, straightforward,

and clear investment thesis should look like. That's high praise. If you Google Norbert Liu, you won't find pictures of him. You won't find interviews except for one that was done in 2011. And you won't find any investor letters. Liu first discovered and invested in the home builder NVR, which is a well-known home builder in the U.S. in 1997 while managing his personal money along with his mother's retirement, allegedly. At the time of the first purchase, NVR was trading for around 23 bucks a share.

NVR is one of those compounders that have never split the stock and it trades for like $7,500 US today. So that's quite the return. Quote here from Norbert in that interview, you actually want the companies that have bountiful reinvestment opportunities that they don't buy back any shares, end quote. I thought that was a pretty interesting take. I mean, of course, in capital allocation,

you want investment managers to have a wide decision tree of options and be good at making said decisions in the decision tree. And I thought that was really interesting because in my large position, Constellation Software, they don't buy back any stock. I don't think that they have any plans to buy back any stock. They don't increase the dividend because they can compound capital faster at doing acquisitions in M&A for their investors. a bad being a bad stewards of capital to do anything else but that allocation and it's worked out pretty well and so i think that that's a really interesting take and one that like logically is really easy to understand it's like if i can achieve an extremely high roic far beyond any other type of allocation strategy i probably shouldn't be buying probably shouldn't be paying a dividend. Lou Norbert applied to the club,

Value Investors Club with a write-up on NVR with the pseudonym Charlie479. His application was accepted and his initial write-up was on NVR and two other investments that both smoked the market. While the funds are not publicly disclosed, we can parse them together, some stuff, because he has to file a 13F. While managing his personal money from 94 to 2003, Liu calculated he had generated an annual CAGR of 38 and a half percent, not bad.

Quote, I always tell students in business school they'd be better off when they'd got out of business school to have a punch card with only 20 punches on it. And every time they made an investment decision, they used up one of their punches because they aren't going to get 20 great ideas in their lifetime. You're going to get four, three, five, or seven, and you can get rich off five or three or seven. But what you can't get rich doing is trying to get one every day, end quote, Warren Buffett. So the punch card idea, you're familiar with this idea, right? It's like the train punch ticket. Okay, good.

You have a limit amount of shots to take basically yeah right it's a way to think about increasing your bar for quality your hurdle rate it's like if i only have 20 decisions i can possibly make i gotta have a lot of conviction and i can't be messing around with stuff if i you know that i might be thinking about if I had thousands of punch cards to make. And I think that that's a really useful framework. And so inspired by that Warren Buffett concept, being in the value investor community, Lou Norbert started Punch Card Capital, which is a badass name for an asset management firm. 2004 to his public interview in 2011, loose fund returned 14.5% net of fees. Now, that doesn't seem crazy, but during that time, the S&P returned just 2% a year,

if you category it out. Because you ever heard of the great financial crisis and post-waxing of stocks in the early 2000s, it was not a good stretch to own stocks. People didn't create a life-changing amount of wealth owning the S&P during that timeframe. Since that interview, the portfolio has been mostly Berkshire Hathaway, a few financial stocks here and there. Today, the portfolio is half Berkshire, a quarter

Ally Financial, roughly another quarter Winnebago, and Smith & Wesson brands. Likes value, likes Buffett, that's for sure. I really wonder if in that personal account he ever sold NVR because that stock has been a freaking monster, that home building stock. Yeah, that's kind of crazy. But I mean, it just goes to show, when you have a lot of conviction, I mean, you don't have to take multiple bets, right? I mean, obviously, you want to be diversified. I think I'll enter that with a caveat. But just buying companies to buy companies, I think you have to make sure that you buy the right kind of companies. I mean, I've made the mistake in the past too. Sometimes I should have had

more conviction, but I think that's a good reminder. Yeah, I know. I mean, it's obviously easier said than done to have a mass amount of conviction and hold on to it through the ups and downs. I mean, you look at a company like NVR, the home builder, and it's caggered at 24% over the last 35 years. That makes stupid wealth changing money. You get like a 150 bagger after that math, total return wise after since the IPO. But that is a long ass time. since the IPO, but that is a long ass time. And the stock has not been fun to own the whole time, right? Like that's the thing that people forget about these monster hundred bagger type names that are in the Chris Meyer hundred baggers book. They've been actually really unfun to own for huge long periods of time, sometimes close to decades. and so i think there's lots of takeaways

when you look at a name like this and the story behind the the amount of money that was made by by holding it and being can doing actual deep research and like wrote the thesis yeah no exactly and on that theme i think i'm gonna i had a segment inspired by a listener to talk about stop losses. But I think I'm going to keep that for next week. And this is, I'm going to throw you a curveball because something just came out that I think is noteworthy. And I'll share my screen. All right. Whoa!

So do you want to take a guess what happened? So for those watching on Joint TCI, you'll see. But for those who are not watching, essentially I'm showing Braden just the Canopy Growth Corporation, so Weed.to, one of the biggest cannabis producers in Canada. The stock is up 51% right now. And it's not just this one. It's all marijuana stocks in Canada or the US because the US is apparently going to move to reclassify marijuana from a Schedule 1 drug to a Schedule 3. You know, I know a little bit about those schedule. I think Schedule 1 includes like stuff like cocaine, like really hard drugs that have like no medical benefit. And Schedule 3 is really on the

lower end where, I mean, I think a lot of people are probably anticipating that they're going to be moving to legalizing at some point in the future based on that, or at least decriminalizing on a federal level. But I mean, I figure it, I know it's kind of off the cuff, but I don't see these massive moves very often. So i figure it was kind of wild because obvious i think there's probably a lot of our listeners that own canopy or you know have owned marijuana stocks at some point in the past well that's actually a really you know investing aside a good proposed change i mean it's it's just so outdated to to be having it scheduled with like heavy narcotics and like extremely you know like uh brutal risky deadly drugs to be in the same

mix with with with cannabis so i think that that makes complete sense i think a lot of people have are still going to be waiting for that kind of full-scale legalization. It just felt like the U.S. has moved way slower than I think a lot of people would have expected on this stuff. Yeah, exactly. Yeah, me too. And I mean, I think the – and just so people understand a little bit. So in the U.S., you have this kind of two-tier system. just so people understand a little bit. So in the US, you have this kind of two tier system. So it was like, essentially, you know, it still is, I guess, until this has changed, but it was

classified as hard as like other hard drugs. And then you had it on the state levels where a lot of states were starting to make it legal. So I think at some point, obviously, I think the federal government will have to change its stance, probably at least decriminalize it. In terms of, I would caution people to get too excited because obviously the market is quite excited right now. Their canopy is just like, you know, it's basically increasing second by second as we have this showing. But I think it doesn't mean that these companies will necessarily be, you know, profitable or good companies going forward. Obviously, it's good news for these companies as, you know, down the line, it probably will open some opportunities, but I think they'll be faced with similar problems than they were faced in Canada that, you know, it comes down to being

a commodity. And, you know, I've said it time and time again, I think 10, 15 years down the line, I think you'll have a few large companies that will be making money selling marijuana, but they will do so on scale. They'll have, you know, small margin, but scale and that will enable them to actually be quite good companies. But I think we're a far cry from that. I think like, you know, there's a recent I've said 10 to 15 years. But I think we're far quiet from that. I think there's a reason I've said 10 to 15 years, because I think that's going to be far, far down the line. Yeah. I mean, it's like one of these things where it's like, okay, cool. It's still a brutal business. It's still just a terrible business. It's so commoditized so difficult uh you know it's one of those things where i i look at

the largest the largest so the the comp i think i always think of is solar panel manufacturers by the way be doing that on a different platform uh if you're gonna be sharing it on yeah well yeah just because it's like it's bigger to see it. That's the main reason. It's just the numbers pop more. Got it, got it. Don't be a... We use FinChat around here, baby.

FinChat is much better. Yeah, it's much better. So solar manufacturers, solar panel manufacturers are, in my mind, a very similar comp because you had this very exciting industry. Very exciting. There's going to be all this wide scale global adoption of renewable power. Solar is going to be a huge part of it. And you have the largest solar manufacturers in the world. A lot of them are public. And a lot of them are just horrendous businesses and terrible stocks.

Because the margins are a joke. The competition is immense. You have all these massive other different players. And you have this race basically to zero. You have a very deflationary product as well. So I always think of them like solar manufacturers where you had this extreme excitement, extreme hype building into them. And their stocks look a lot like cannabis stocks because the reality of that business is very terrible. Like it's not great.

And I think that you run into a similar situation and similar product, a similar compression and margin, a similar increase in commoditization and competition for what are both exciting growth industries, right? You have these exciting growth industries right you have these exciting growth industries and a bunch of terrible businesses in that basket yeah because i like these businesses and let's be clear here they're not you know exactly like a shining beacon of profitability so i have canopy growth here that you know people can see they're losing tons of money doesn't matter what you look at if you want to look at free cash flow, I can guarantee you without looking that they're losing a bunch of money based on free cash flow as well. So this is, you know, it's I'm not going to lie. Like it's it's good news. Like clearly it's not bad news for these companies. But, you know,

it's not going to change their fortunes in, you know, in the next year and probably not in the next two, three, four or five years. Like it's going to take time and hopefully they can survive until then to be able to capture the U.S. market should it end up being legal on the federal basis, you know, down the line. But I think it's just I think it's just a good reminder for people listening to the podcast to not get too caught up with the hype. That's one of the reasons why I wanted to chat with you more on the fly as this news came out. The stock is up 50%, but be careful trying to chase the gains because these are pretty horrible companies now. We have no problem just telling you that it is. They're not good businesses. Yeah, exactly.

You want to own a money-losing company that's been diluting share a whole lot, then, you know, have at it because that's what these companies have been. And then, you know, for canopy growth, you kind of throw in the fiasco that was BioSteel and going bankrupt and all that. It's just a good reminder. Like you can see a big pop, you know 50 like we saw today but just to be careful because i wouldn't be surprised if the stock goes down massively in the next like you know three to six months uh just because there's a kind of momentarily pop based on just a set of news that will probably not have any material impact for years down the line. At least they're just not trading at 215 times sales like back in the day.

No, no. When everyone liked the stock, they were – I don't think the people who were buying the stock were really excited about it, knew what price to sales even meant. So who's to say? All right. Should we – that's the pod i think that yeah that's it then uh you know see come back in next week i do have like i think you saw it like a pretty good segment on stop losses and uh and i think it was thomas that sent us a question so sorry thomas

couldn't get to it this week uh wasn't expecting this but uh I'll get to it next week. Stop losses. I know, Mike, I haven't read your take, but I know my take. I can't stand using stop losses. It's one of those things where, we'll wrap up the pod here in a sec, but it's always really important when you're learning about investing, you're watching YouTube videos to match the game of the advice or hot takes that are coming out, even from us, on what game that you're playing. Because that's a very effective tool for active traders who don't want to get wiped, who are day trading and looking at screens all day. Versus like us, we're buying really high quality companies and holding them for a long time if there's a big drawdown i might consider wanting to buy more instead of exiting and selling my position so just not to get into stop-loss but just check what game you're playing

right because that's a really useful tool for a different game and it's a game you and i play is very different so just yeah and next time you're making that advice online. I've used it in the past, but not, I think I've used it twice in my investing career. So clearly it's not something I use very often. I think it's something, you know, part of my toolkit that I can use, but it's not something I use on a regular basis. And I'll expand a bit more on that. Clearly for trading as a bunch of use cases, like you just said, if not, I think it can be a good

tool. If we go back to, you know, my Teladoc days when it was at all time high, well, I probably wish I would have been able to put a stop loss on at least part of my profits. And that's kind of the angle I look at it is when things are clearly like extremely overvalued. That's kind of a tool, but without going into detail. I have a question for you. Final question of the day. Do you think canopy growth estimates forward estimates on revenue for 2026. I know estimates out multiple years is kind of bogus. I know, but we aggregate them on FinChat.

I think they're really useful for one year out. But moving forward to 2026, do you think total revenues are higher or lower for consensus estimates out to 2026? Yeah, I'm looking at them right now. Hold on. Let me pull them up and tell you the answer. You cheated.

Well, no, no. I mean, I can still say if the consensus is right or not. Yeah, I thought that was a question. No, my question was, what do you think analysts would have had? But yeah, it's lower. They're guiding for 321 million in revenues in 2026 estimates. Of course, it's just estimates, take it for what you will. And trailing 12 months, they've done 362. Yeah, I think it could be higher than what estimates are saying, mainly because there's more consolidation in the space. I'm also factoring it that there's, I think, you know, it's hard to

get some real good data on that. But I think there's more and more people shifting from the, you know, black and gray market to the legal market, which will benefit these companies. And I think that's been a slow trickle. But the data I've seen, and again, it's still, you know, you're asking people kind of sensitive information. So you have to take it with a grain of salt. But I think that part has been happening very gradually. I think it'll continue happening. So I think it could be slightly higher than what estimates are predicting

in terms of the coming years, Whether they're profitable or not, I would probably say that they will likely not be profitable, but revenues will increase. Gotcha. Yeah, I'm with you. It seems pretty bearish. I mean, you'd probably lose a lot of money if that plays out of estimates.

I'm not saying it's going to be a good investment, so don't get me wrong. I'm just saying that they've had a rough time and it's definitely not been as good as analysts were predicting four or five years ago. But I think there might be a bit too bearish. But again, even if I'm right, I'm not necessarily thinking this will outperform the market. And somehow in that same mix, operating income goes from very negative today to a lot less negative with revenues down. I don't see that happening really personally, but-

Yeah, exactly. But you know, we're not analysts braiding in consensus sell side. Thanks for listening, folks. We really appreciate you tuning into the pod. We are here Mondays and Thursdays. You get me on the pod here Mondays and Thursdays with one of the Dan's. Dan from The Real Estate Show was on here last week, filling it for me. And then Dan Kent from StockTrades.ca. Frequents on the pod

every single week as well. You guys have your uh slate of stuff to talk about absolutely jam-packed we're recording this at amazon's about to report we had tons of earnings last week so make sure you guys are tuning into those thursday shows because this is q1 earning season in full full swing right now yeah. Yeah. And don't worry. All I do is screen share Finchats. Oh, attaboy. This was just, yeah, this was literally just for getting that big number. That was literally the reason.

Because I don't like, aside from that, it's not useful at all compared to Finchats. Finchats, the goaded platform. That's a good little handoff for me. Finchat launched FinChat V3. V3 is so freaking good at summarizing earnings calls or transcripts or like, give me five takeaways from the Google call last week or the earnings report came out. Why are investors so excited about it? Give me five points, give me 10 points points give me whatever you want summarize it it's so freaking good at that now so go ahead and give that a try you can

you can use it for free for a certain amount of prompts so you can you can pay and get more so that's uh finchat.io not uh any of those other ripoffs trying to come after us it is finchat.io oh there are some oh yeah i'm not gonna give the the domains out because because screw those guys but uh finchat.io i i think i'm gonna have to put it back in the name of the company here because we got these scammers coming after us so yeah it's good times hey you know you know you're doing well if you've got scammers trying to go after you. I think that's a pretty good proxy for success. I'll take that. All right.

We'll see you in a few days, guys. Take care. Bye. The Canadian Investor Podcast should not be construed as investment or financial advice. The host and guests featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.