The Canadian Investor - The Largest Fraud in History

Episode Date: January 30, 2023

In this Monday release, we are doing a hybrid episode. We start by discussing the new Netflix documentary on Bernie Madoff. Simon then talks about some potential emerging markets other than China. We then go over some recent earnings and go over stocks on our watchlist.  Tickers of stocks discussed: MA, V, ASML, CNR.TO, AMZN, GOOG, CP.TO, COST, INTU, ICE, NDAQ, AAPL, CRWD, HD, TSM, LMT, RACE, AXON, TXN, BLK, ATZ.TO, MELI, ADBE, SBUX, LSEG, UHAUL, TMO, SYK, ABNB, CPRT, MSCI, LYV, TYL 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 Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Sign up to Stratosphere for free 🚀 our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense. Register for ShakepaySee 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 Bélanger. The Canadian Investor Podcast. I'm so happy to be here. My name is Brayden Dennis, as always, joined by Simon Bélanger. You knew we were recording this Friday morning and you put on blue again. You're like, you're like, yeah. Last time I got compliments, I got a roll with it.

Yeah, no, I just, it was actually a coincidence. I just grabbed the first thing I could put my hands on after doing my bike training this morning. Atta boy. It is Friday, January 27th. We don't often do Fridays, but we're doing Friday and it feels good. Simone, are you guys getting dumped on with snow right now? Yeah, it was really bad. In Ottawa, I think we got pretty much like 30, 35 centimeters here. So it was over a foot.

Really? Yeah. In like a day, right? Yeah. I would say like 12 hours span. Yeah. Overnight mostly. Oh man. I'm not even going to tell you the view I'm looking at because it's just cruel at this point. Today, we're going to talk about the Bernie Madoff documentary. Let's kick it off with that. And then you're going to talk about the Bernie Madoff documentary. Let's kick it off with that. And then you're going to talk about investing in emerging markets. And then just because it is earnings season in full swing and there's some companies we want to talk about like Visa MasterCard, ASML, we're going to

do some earnings. And then we're going to round it out with stocks on our watch list, which is a favorite segment of both us and the listeners. So stay tuned for our watch list at the end of the show. All right, let's talk about this Bernie Madoff Netflix documentary. Did you watch all of it by chance? Yeah, I did, but a couple weeks ago. So it's still relatively fresh, but probably fresher for you, I think. I'm about in the same time frame, maybe a little early, maybe like three weeks ago, but it's one of those things where it's so dirty, watching it, that you almost want to forget the details because there's no happy ending in this fraud. It's just devastating. You almost need to take a shower after you watch that Netflix documentary.

All right. We'll get into it here. As you know, I'm not like a big movie guy, not a big TV guy, but old baby. Documentaries are my thing. And there's layers to this as well. Like white collar crime documentaries, I can't look away. Even if like there's a niche. Do you know about the niche on YouTube? Like CoffeeZilla, for example, like people exposing frauds and internet scammers. Yeah, yeah. I mean, yeah. These people are doing God's work. Yeah, Cuffee's a list pretty good. So I do follow him. I haven't watched all his videos, but definitely took note with the whole FTX thing and then started watching a couple others. They're doing God's work to protect people because you got to get the word out on these fraudsters and scammers. And often it's, it's these like DIY journalists that are doing better work than,

uh, than mainstream media and, and perhaps the regulators, which we'll get to, um, anyways, the Madoff documentary, a very quick recap.

Um, there's lots to know the players involved in the timeline of how it all unfolds, but here's my one-minute recap version. Bernie Madoff ran two businesses on Wall Street in the same tower of New York City. And one was a market-making business that actually employed close to or over 100 traders at their peak. This was a legitimate business. It was doing a significant amount of volume for trading for Wall Street. And this was what the general public

knew Bernie's success was from. And he was outright successful from this business in his own right. And it was a very legitimate, regulated market making trading business for Wall Street. And at the time when margins were really good on market making, this business was printing cash. So Bernie was well respected on Wall Street. He even served as the chairman of the NASDAQ for three years, which is crazy thinking back because now we know how this all unfolds. He was trusted by the SEC. Overall, his reputation was of a proper businessman. Now, the other business that was going on this whole time in the background, business that was going on this whole time in the background illegally and under the radar was what came to be a 60 plus billion dollar Ponzi scheme. An outright fraud, an outright

dirty crime, just no remorse. And what they did, Simone, and feel free to chime in on any details if you think of them, but they would basically just run a normal Ponzi, but they would be taking money and pretend to be investing that money under Madoff's investment advisory business. And they would print fake statements, create fake trades, and deliver these fantastic, stable, never losing money returns back to the people who were investing their money, but they were not actually investing their money. They were just giving money to Bernie Madoff, who was running a Ponzi scheme with that cash. So he was funneling billions of dollars from high net worth individual and feeder funds at first. And then here's where it gets crazy. He was investigated by the SEC. Somehow the SEC didn't catch his fraud, was given the green light. And they

basically just said, hey, hey, Bernie, this illegal unregistered investment advisory business, which was actually a Ponzi scheme, it's all good. Just Bernie, please just go ahead and register the advisory business. And then you can at least operate this thing legally. And then you can at least operate this thing legally. Thanks, Bernie. What a load of shite that is, first of all. And then once he was investigating, given the green light, now billion-dollar hedge funds, mostly from Europe, were now piling money into this Ponzi as well. It ballooned with earliest reports of fake trades from the 1970s all the way until the financial crisis of 2008. The stock market crashed, devastating global recession, and the Ponzi had a bank run. That's really what happened, right? The Ponzi had a bank run with all these withdrawals,

and it basically immediately exploded. Now, I'll round this out just with Bernie eventually pled guilty. He received 150 years of prison time and eventually did die in jail in 2021. Any high-level stuff I'm missing in the story? Yeah. the story uh yeah so the first thing i would mention is there is some good news for the investors that were kind of you know obviously where bernie madoff committed the fraud is i was looking at why we're talking and i had heard these figures before so they ended up recouping around 81 of their investments originally obviously it took an extremely long period of time. I think

that came out the most recent figures in late 2021. So I think it's a good example, especially if we're trying to compare and pull some parallels between- But you know how they, sorry to interrupt, but you know how they did it, right? They basically were having to give money from the people who made money from the Ponzi back to people who lost money in the Ponzi. Yeah, they forced them to rethink. But that's problematic. Say I made all that money, it was my nest egg in the late 90s, and then I no longer have it. I'm in my 70s now, and I have to give away a million dollars that I probably don't have or definitely need to someone else randomly. I'm also a victim in this situation. I don't think anyone wins there. I don't know what the

best way to do it is, but it's not just like, yeah, 80% of the funds were recuperated. The way it was done was basically these victims got screwed twice. That's how they recouped the money. Yeah. Well, yeah, that's true. And they do talk about that in the documentary where there are some pretty sad situations. Obviously, I'm sure some of the investors had no financial issues being able to repay it back. So it's kind of a case by case. But they do talk that there's not really an ideal

kind of resolution when it comes to that. And even the 81% when you put in perspective, right, you could easily in the S&P 500, probably more than doubled your money during that same period of time. So you have to keep that in mind where 81% is not all that great. If people want to look up kind of an interesting fact in all of that is the Mets owner at the time. And I kind of, I forget the name of the Mets owners, but I know the story. So I listen sometimes to Steve Phillips, who used to be the general manager. Are you talking about Steve Cohen? No, no, that's the new Mets owner. But the Mets owner at the time, he was, and they do mention his name during the documentary of that family. I think it's a Wilbon family or something like that.

But I'm not quite sure. I might have it wrong. There's a famous contract from Bobby Bonilla where instead of paying him all the money up front for the contract, they agreed with him to space it out over something like 30 years, $1 million a year. Because the owner said, we want this player, yes, but we're making 15% guaranteed with Bernie Madoff. So let's spread it out over a super long's spread it out over like a super long period of time, and we'll actually make money on it. So that's an interesting kind of fun fact. People can just look up Bobby Bonilla, and they'll kind of look the be able to see the background story. And the last thing that stood with me on that documentary is at some point, and I'm probably butchering the quote here is that they refer to blue collar crime so

crime that's you know it could be murder shoplifting something like that right where the you know the investigation or the the bodies if you like if you're comparing to murder they actually come before the investigation where in white collar crimes like this the bodies actually come after the investigation so you know you talk and there's unfortunately people that took their lives including one of his sons and some other investors so i think that's super dark man it's so dark yeah exactly so i think that's something to keep in mind. Obviously, there's some, I think, parallels and differences between this and FTX. And FTX, we still don't know the full story. I guess we'll know in the next year or two as it goes to court or if there is a plea deal, whatever happens there.

But with FTX, a lot of the things that happen is investors were just not doing any due diligence. Whereas this one, some investors were not doing due diligence, probably the majority, but some were, and Madoff went out of his way and his team to actually produce false documents. So that's one of the key differences here. I think it's important to remember. I'm sure there's going to be some very similar things

that will be happening as well. But it's kind of interesting to see that documentary and seeing in real time what's happening with FTX2. I don't know what you think about that. Yeah, there's definitely some things that kind of rhyme with those two situations, which is you have someone hiding in plain sight, for one. And two, co-mingling of funds between two businesses. That is something that stood out to me in drawing a parallel for sure, because there's co-mingling happening with his investment advisory business and the trading arm business. Same with Alameda and FTX. So I'll break this down into four thoughts, which is, I have these four thoughts prepared. And the first one is, some of the largest con

artists pulling off these gigantic billion dollar plus Ponzi schemes love to hide in plain sight. They thrive off attention to feed their ego and they hide right where everyone can find them, including the law. Number two, the length sociopaths will go to fool their victims is hard to fathom. And so you have to do the right amount of research. This one, I don't know how you could do enough research. If you can fool the regular, you're going to fool investors as well. So this one, man, it's just sad. Three, regulators can be corrupt. And then honestly, in this case, downright lazy, not doing their jobs. They were handed significant evidence that Bernie Madoff was running a Ponzi scheme in the year of 2000. A literally 100-page document with 34 reasons with proof outlining to the SEC every single

year from 2000 all the way until it blew up. They had sufficient evidence that this was an illegal Ponzi scheme. So make sure to always do your investigations on your own with big financial decisions. I mean, people can get fooled, clearly, in this situation. But it's just a reminder, big financial decisions, like huge ones, it's too expensive to get wrong. Number four, there's basically no happy ending here with some of this white-collar crime. You know, the last episode showing his family, the fallout, the victims, you mentioned it. It's really, really dark.

So if you do watch the show, just have that in mind. You know, like there's no real like, you know, real like success at the end. Like it's really dark and especially, you know, people taking their own lives at the end. So just to warn people who do watch it, it's not a fun time, but it's certainly very gripping to watch how this gigantic piece of history for financial nerds like us, how it unfolded. Yeah. No, I think that's well put. And I think I would probably just add to what you said. It doesn't mean that some well known investors are investing in something

in particular that it's necessarily a good investment, like we saw it. And I'll go back to the FTX thing, right? You have these major, supposed to be, you know, really good investors and institutions, putting money in it. And, you know, if you just kind of follow what they're doing, well, you would have lost all your money. Obviously, it wasn't open to regular investor like you and I and people listening. But I think that's just a good reminder to always do your due diligence, even if Warren Buffett invests in something. I mean, he's made some bad moves in the in the past. He's made some tremendous moves as well. But just a reminder to always do your own research and, you know, make your own thesis.

Because, you know, people, even as good as they might be, sometimes they miss something. Yeah, you can't follow people into trades because you can't borrow someone else's conviction no matter what it is. Like Sequoia, fooling Sequoia for FTX's example, like dude, they're the one of the name brands in Silicon Valley for venture capital investing. So you get the stamp of approval from Sequoia and it's a ticket to fooling a lot of other people as well. 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.

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I was looking for. Low fees, an incredibly robust suite, and truly something for every investor. And here we are with this iconic Canadian brand in the asset management world, while folks online are regularly discussing and buying ETF tickers from asset managers in the US. Let's just look at ZEQT, for example, the BMO All Equity ETF. One single ETF, you get globally diversified equities. So easy way for Canadians to get global stock exposure with one ticker. Keeps it simple yet incredibly low cost and effective. Very impressed with what BMO has built in their ETF business. And if you are an index investor and haven't checked out their listings, I highly recommend it. I bet you'll be as pleasantly surprised as I was that BMO, the Canadian bank is delivering

these amazing ETF products. Please check out the link in the description of today's episode for full disclaimers and more information. All right, let's move on to your next segment here talking merging markets. Yeah. So I'm going to try and make the case for investing in merging markets. I'll try to do that over a couple of podcasts because I started working on this segment and I'm like, you know what? It probably would be a full episode and then some and obviously we want to do other segments and there's definitely I want to make sure I do proper research and I bring some good value to listeners so we have talked in length

the past couple months or past year I would say investing in China it was something I was invested through through the KWeb ETF and Tencent I sold both of my position a few months ago because I just didn't think the geopolitical risk in China was just too great. Obviously, in hindsight, I probably should have waived it a bit, but at the same time, I did not know where it was going to go at the time. There's been a bit of a rally there, probably based on the air quote reopening of China. But I still wouldn't feel comfortable investing in China. And that's why I took that decision, because the direction of China as a whole, the Chinese Communist Party and the control that Xi Jinping has over it is just worrisome because you really don't know where they're going to go. And I think the zero COVID policy is a perfect example of that because, you know, late as last fall, they were saying that basically they were continuing with this zero COVID policy. And then in December, they basically pretty much started reopening everything and did a 180 there, which, you know,

you can debate whether that was the right approach or not that's not what i'm trying to say here what i'm trying to say is just they make these decisions and they come out of the blue right no one could have predicted just such a sudden turn of events so that's the main reason why for me investing directly in china is not in the cards anymore i do still have some exposures through some investments that I have in businesses that will do business there. Apple's a prime example here. Did you want to say anything on China or just let me keep going on that, Brandon? Did you, I think I missed this.

Did you close out KWeb as well? Yeah, I closed out both. Yeah. You did. Okay. Okay. Yeah. I'm glad you touched on the the apple thing too right because somehow they just get a free pass in terms of like the trying at risk um yeah um maybe because they just print hundreds of billions of dollars a year that

also helps um but yeah it is the wild card. I'm glad financially that I didn't capitulate and sell it because I think my intensive position is up like 90% since we talked about how grim it is over there. But I mean, that's where stocks and markets find bottoms is when there's just, it looks terrible. The future prospects, the uncertainty is at all time. Doubts is when you find a bottom.

And that's why I'm always just cautious for selling anything when I think that the real business fundamentals are intact. This one's weird because the business fundamentals and the geopolitical concerns intersect very often in this situation. So yeah, it's hard. It's hard to... Yeah. It's hard. It's a challenging situation is what it is. Yeah. And the challenge with China too, there's always that doubt, right? That there may be not be full transparency even in those financial statements, right? So there's always that, you know, you never know for sure. So I just didn't feel comfortable with the risk. But again, it was a small position for me, because I always had that kind of cautiousness about China. And

just the fact that, you know, in the past three, four years, there's always been some, you know, it's intensified recently, but, you know, there was always that risk in China. But regardless, I still think there's a case to be made for investing in emerging markets because there's other countries other than China. And the three areas I'll be focusing more in the next couple releases that we have on Mondays will be Southeast Asia, Brazil, and India. So Southeast Asia, for those not aware, it typically includes Myanmar, Burma, well, Myanmar or in brackets, Burma, here, Cambodia, Timor-Leste, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand, Vietnam, and Brunei. So these are kind of all on tin here here and the upcoming... Hearing that makes me

want to get my backpack, get on a plane and bring absolutely nothing for a couple months and live like a backpacker. No, no, no, exactly. And then in the upcoming weeks, I'll definitely do a segment on each of them because I think it's important to look at the data for each and not lump them all together, especially if you're looking at potential ETFs, right, or investing in certain businesses. There are some ETFs that will be focusing on all those geographical regions. And I'll just finish on this. The reason why I talked about China is I'll go over some examples here of businesses that are shifting away from China. So for the most part,

it's productions here, but I'll start here with BlackRock. In November, they mentioned that they were indefinitely postponing the launch of a bond ETF in China. From what I've read, it sounds like BlackRock was concerned about potential backlash from the US government. Another example here is Nike. They've already started shifting its production from China to Southeast Asia and Africa. Puma is another one. They started shifting its production from China to Southeast Asia. And these clothing retailers, what's interesting here is there was a bit of a backlash in China in 2021 with some of the human rights issues happening where people were actually boycotting in China those brands because of that so that's just an extra tidbit that's interesting Hasbro

the toy maker has already begun shifting its production from China to India and Vietnam following the US-China trade war that started during the Trump presidency. Samsung's another company that has shifted its production away from China in favor of Vietnam. Alphabet is another one moving the production away from China. Alphabet or Google, for those not familiar, they are not in China. However, they were manufacturing the Pixel smartphone over there. So they're moving that from China to Vietnam. And then the behemoth Apple, like we mentioned here, they are starting to move their production away from China.

Their latest move is that they will move away from the manufacturing of MacBooks from China to Vietnam. They've also begun moving the assembly for iPhones from China to India, but it is still predominantly done in China. The figures I saw, they're still at like 90 to 95% still done in China. And the estimate I've seen is three to four years for most of its iPhones to be assembled outside of China because it's such, you know, at a large scale. But it's important to keep in mind, they're really just

assembled in China. So the production of the most crucial parts of the iPhones, for example, they're done by Taiwan semiconductor, so they're not done in China. So that's the semiconductors inside of those phones. So that's an overview. And some of the reasons why I think the three regions I talked about could be benefiting from a move away from China. And then, like I said, in the upcoming Monday's episode, I'll come out with more data in terms of foreign investments and things like that for each region. Speaking of Taiwan Semiconductor, have you seen the moves just on semis since November?

It's been insane. Oh, yeah. Well, I have ASML. It's almost doubled since I bought it. Congratulations. When we were, I think we timed this really well. You and I were super bullish on semis when basically right at the bottom. I'm not saying we try to time anything,

but our screens just came up. These things became screaming cheap overnight almost. Back to the emerging markets discussion, I don't have a whole lot of thoughts here other than there's many ways to go about getting geographic diversification. And I think that it's so important that we talk about it because even when I was thinking about this last night, I was like, I always rip on Canadian home bias, and I'm guilty of it too. But I don't think that my portfolio has really any Canadian home bias other than maybe currency risk. I'm worried about businesses that only operate

in certain geographies and have no ability to kind of get global scale. And there's lots of Canadian businesses that get global scale. And so you can get diversification through what you're talking about or through businesses that have global scale. But I'm not saying anything really unique here. I think that we've talked about that extensively. Yeah, no, no, that's a fair point. I do get interested in getting, especially if I'm bullish about a certain region for emerging markets,

I do like having some exposure. I've had some in the past for ETFs, but I definitely understand what you're saying. There's a big difference investing, for example, in a Canadian tire, which, you know, it's a it's a good business. It's just the growth prospects won't be massive going forward versus a company like, I don't know anyone that comes to mind right now. But let's say even a Shopify, right? They're completely different types of business. I know Shopify goes at way higher premium and all that, but Shopify will have clients around the world. So you do have

those different types of businesses, whereas Canadian Tire, like, you know, I don't think Canadian Tire is going to start opening that stores in the US. The only businesses I see here in, because I'm in Costa Rica and I'm Latin America. The only businesses that I see literally interact with daily that are like American companies, like on a daily basis are Visa, MasterCard, cause they are completely, I mean, people still use cash, but they have gone so digital with payments so fast and Coca-Cola. That's like like those are those i see everything else seems to be you know maybe some of the packaged goods companies like the some of this conglomerates like uh procter and gamble and stuff of course but really like a it's it's surprising like

there's still a lot of penetration available in some of these smaller emerging markets um dude how much better does coca-cola taste out of a glass bottle like what is with that why does it taste like literally 40 times better i've never never you've never noticed that really thought about it really no i mostly drink it out of uh yeah the can or if i'm had a party or something, the big plastic bottles. Well, they don't sell it in glass bottles in Canada. No, no, that's right. You got to be out of the country. It's a game changer.

It tastes literally so much better. Speaking of two businesses that are definitely alive and well here, let's talk about MasterCard and Visa. I'm going to talk about them together. They just both reported earnings yesterday, MasterCard in the morning, Visa in the afternoon. And I own them equal weight, as many of you know. It's like, you know, you can't pick a favorite child. They're visually the same business and capturing wonderful unit economics and potentially the greatest network effects maybe on planet Earth. I'm seeing them daily here, right?

So let's talk MasterCard first. Quarterly results, I'm just going to talk about the high-level table that they provide in their press release here, which is net revenue on currency neutral was up 17%, very impressive. Operating income up 19%. They did have a double digit increase on operating expenses at 14%, but still being outpaced by net revenues. Their margins expanded by one percentage point to operating margin of nearly 55%. percentage point to operating margin of nearly 55%. Dude, it's funny, these companies, their EBIT margin is their free cashflow margin. You have those sustained 50 plus percent free cashflow margins for a long period of time, ridiculous ROICs. These numbers are only stained on truly effective moats,

effective power sustained for a long time, and just ridiculous unit economics that can't be disrupted. It's a wonderful thing. Earnings per share increased 14%. On MasterCard, cross-border volume was up 59%, a huge part of their business. So people tap in their card cross-border like I am doing very often right now and certainly handing Visa a quite amount of money here. Here's a quote from the MasterCard CEO, Michael Meeback. While macroeconomic and geopolitical uncertainty persists, consumer spending has been remarkably resilient. Quarter after quarter, they're saying the same thing. Let's talk about Visa.

Net revenues are up 12%. So MasterCard definitely had a bigger quarter, in my opinion. Just numbers-wise, I have not dug into the calls. I have not done a the calls. I have not done a lot of work on this, but that's because it's literally been a couple hours. Net income was up 12%, but on earnings per share base, 21%. So the buyback machine is alive and well on a non-gap basis. Cross-border volumes up on a similar rate. And so seeing that come back to now like all-time highs, you have all-time highs on transaction volume. It's inflation

resilient, of course, because they're taking a paper cut away from every transaction. paper cut away from every transaction. Dude, these businesses are incredibly amazing, incredibly resilient. People say eventually they'll get disrupted because the unit economics are too good. I'm not saying that that can't happen. I'm just saying that it's very difficult to do it. Yeah, no, it's definitely good quarters over there. It's always interesting to see what happens as the economy shifts. But again, seems like so far hasn't affected Visa and MasterCard. So I own both businesses. And one thing I've been debating where I'm not sure if I'll pull the trigger or not, because it's a small position, but just potentially selling PayPal and just focusing on Visa and MasterCard.

Because the more I look at it, the more I'm like, you know, I think it's easy for more competitors to come in and disrupt PayPal. It's going to be a lot harder to disrupt a Visa and MasterCard. I have been doing everything I can to use Wise, which used to be called TransferWise, instead of PayPal. Because it is just superior in every way. Like it's on the fees, on the UI, on the everything, the connectivity, especially if you're doing it for business. So I share your sentiment anecdotally. And my goodness, PayPal's customer support sucks if you're a business. Like it is horrendous when I try to use it for business. It's mind blowing how bad the customer support is.

Anyways, this is a bunch of anecdotal stuff, but it's anecdotal enough for me to be just bearish on PayPal, even if the numbers keep looking like, you know, relatively solid. No, no, that's a fair point. So I'll move on here. Completely different type of business. Look at the earnings from ASML. It was Q4 and full year. The amounts OB in euros because they're located in the Netherlands here. For those of you who are maybe newer to the podcast, and we discussed ASML, I think, late in 2022. And ASML essentially just produces, manufactures these lithography machines. There's two main types. There's extreme ultraviolet systems, which they're the only ones in the world to actually produce that.

So they have a monopoly on those. And then there's the deep ultraviolet systems and those they're actually not as advanced as the EUV one so the first one I talked about so the DUVs is just said the deep ultraviolet they're not as advanced there are a couple other producers so it's still not many businesses that produce that So just to get some context here. Now net sales for ASML grew 14% to 21.2 billion. EUV system sales grew 12% to 7 billion. DUV system sales grew 13% to 7.7 billion. The sales by segment now.

So logic system revenues grew 4% to 10 billion so logic would be like micro processors those would be logic memory system revenues grew 35 percent to 5.5 billion install base management sales grew 16 percent to 5.7 billion so that's just essentially them maintaining for their clients these machines, ensuring they keep working well. And at the end of 2022, they had a $14.4 billion backlog, which is an increase of 67% compared to the end of 2021. Their gross margins, operating margins, and net income margins were all down for the year. That's mostly due to higher labor costs and increased research and development spending. That's mostly due to higher labor costs and increased research and development spending.

R&D spending increased 28% to $3.3 billion, which is very important. I think you want to see R&D spend for a company like ASML because this is what will allow them to stay at the forefront of new technology. And that's a big edge for them because it's very difficult to develop. And that's a big edge for them because it's very difficult to develop. And the fact that they have a monopoly in EUV shows that it's extremely difficult to develop that kind of technology. EPS was down 1.5% to $14.14 per share. And free cash flow declined 27% to $7.2 billion. They expect continued strength in sales for 2023, especially given that their customers expect the semiconductor market to rebound in the second half of 2023. Given the lead time on production of these DUV and EUV system, customers have to place orders well in

advance because they take so much time to actually produce. They expect net sales for the full year to be up around 25% based on their current view of the world right now. A slight decrease in Q1 and then a big increase for the rest of the year. The expected delivery for 2023 is 60 UV system and 375 DUV systems. And they authorize a new share repurchase program of up to 12 billion euros. The last thing I'll say here is Peter Winnick, the CEO, also talked about the geopolitical front, which has been a big thing for anyone who's following ASML here or even a Taiwan semiconductors are definitely two of the businesses that are the most effective here. They said that that's out of their control, but they continue to provide feedback on consequences of different export controls. And 2022 was status quo with China.

They were not able to ship any of their most advanced systems, so the EUVs to China, but continue to ship the EUV systems. So the EUVs to China, but continue to ship the EUV systems. And they will be continuing their discussion with the, you know, the different nations to make sure that, you know, they provide the feedback here. But at the end of the day, it's out of their control. And there's a lot of different moving parts and a lot of different countries involved in those discussions, as we all know. So that's it for ASML. Did you have anything to add, Brayden? Sometimes the timing just works out. And it certainly worked out here for you. Dude, this thing is such a beast. And I'm glad you touched on the backlog and just how hot the demand is. Because you're right, the nature of this business, you can't afford not to get in the queue with ASML, right? Because this is the definition of what Chuck Ackrey calls a bottleneck business.

It's a bottleneck in their supply chain, and it's a bottleneck that they're fed opportunities from the market that they play in. And ASML is the perfect, perfect example of that. And you're right, we're talking about super long lead times, very like moaty business, and extremely difficult to replicate. There are over 100,000 parts in one ultraviolet lithography machine. Like, that is insane. So, dude, it's really defensible at this point. If you zoom out and you look at the backlog, how much it's grown. And I do agree with you that it's much more sticky than the cyclical nature

that semis get awarded with. And that was your opportunity when you purchased the stock 100% ago. So congrats to you. 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

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more information. Nothing like a fire up on your workout, like listening to Intel's dumpster fire of an earnings call. Yeah, no, exactly. Intel is definitely one that's much different, not in a great spot. I would urge people to be careful and do their due diligence if they're looking at Intel. And I did listen to their, not all of it, but most of the conference call and some of the questions that they receive for Intel. And it's not looking great. Obviously, their revenues are way, way down. They're in the midst of a massive transition right now.

And the biggest issue with Intel is that it's an integrated chip or semiconductor business. So they design their own chips, but they also produce them. And they are behind in terms of technology to producing them compared to a Taiwan semiconductor, which focuses only on producing chips. They do not design any chips. They get those designs from AMD, Apple, Nvidia, and a bunch of other companies. They produce it. They focus on their customers. They have no interest of copying their potential designs, whereas Intel is kind of trying to do everything at once here.

So they're trying to design their chips, produce them, but also get customers to produce the chips for them. you know i'm thinking amd here i'd be worried if i were them if i actually designed a great chip send it over to intel for production and then you know the next thing i know a couple years down the line intel's actually copied the design and has a very similar chip in their lineup so that's where it's a bit of a head scratcher in my opinion for intel is they're trying to do a lot of these different things all at once. And the last thing I'll say here is why are they keeping that dividend? I mean, if you're trying to turn the business around, your tech business, you're investing heavily for the future. Why are you spending over five billion a year in a dividend? I mean, I think the market would take this as a positive way. If you cut it, I would just remove it altogether and focus on turning around. I think that's the right move.

The sentiment is already pessimistic enough for Intel, rip off the bandaid and just cut that dividend. It makes no sense. And while you're talking, I think you put that well, it's like this business has changed where the integrated companies are not doing either of their jobs particularly well, and the designers are doing their job well, and the pure play foundries are doing their job well, aka TSM. So the integrated companies, it's like your designs are subpar and your foundry business is subpar. You don't fit in this ecosystem doing either of them extremely well. And so what do you do?

You're in a tough spot. They're so big that making these large axe decisions to pivot their business is impossible. And those dominoes really started to fall when they lost Apple, right? As a major customer to TSM. They've been lost in doing neither of their jobs as good as their competitors. And so capitalism will do the rest from there, right? Yeah, exactly. I think that's well put. And I think the issues, too, for Intel, for anyone potentially wanting to invest with them, is they're not even sure how the business will be doing the next year or two down the line.

They said they provided some guidance for the first half of 2023. And beyond that, they said, well,'re actually we don't know what the environment will look like they there was a lot of blaming on like external factors um which kind of annoys me a little bit because you know i get that yes it can be cyclical when you're actually you know in the chip making business not a company like asml who produces the machines to make them but at the end of the day i think you have to look inwards a little more. And that's what kind of rubbed me the wrong way about the call is there was just a lot of blaming

on macro factors, whereas you're looking at some of their competitors and they're doing actually quite well. So that's where I think it doesn't hold up all that much. And the last thing I'll say is their inventory levels are quite high, which is never a good thing, especially for semiconductor businesses because technologies goes forward pretty quickly. If you have a high inventory of more outdated technology, you have no choice but doing some pretty drastic price cuts. So you're going to see those margins that already dropped remain quite low for

them. I think they have like a – it's a joint venture with AMD, I think. I think. Yeah. Yeah, that's it. Yeah, just say, you know. Nothing like an Intel earnings call to fire you up on the morning workout, Simone. This is why we appreciate you. let's move on to our final segment today which is stocks on our watch list by eq bank and i should i should know eq bank they are a sponsor of ours but they just launched this new card as well the eq bank card and i am about this close from just not having to use any big canadian banks anymore and i project that I'll have like more hair on my head in 40 years by not having to use the big,

the big, the big banks. Like you age, like you're on, you're on hold with a big bank for like 45 minutes and you age like seven business years. You age at least 14 business days in those 45 minutes. So EQBank's process is just so much better. And I'm saying that as a customer,

not only just because they sponsor the podcast. So thank you to EQBank. Do you want to kick us off first here? Yeah. Yeah. So I'm going to do kind of a hybrid here of earnings and the stock at the same time that I'll be doing the earnings I have on my radar. So it is a company I already own, Canadian National Rail. So obviously, I think pretty much anyone should be familiar with CNR here. I'll go over the full year result and just say afterwards why it's on my radar. All amounts here that I'm going to talk about are in Canadian dollars. Revenues increase 18% to $17 billion. Revenues up for all segments, although volume was a bit more volatile

depending on the segment. Coal was their biggest mover in terms of volume with an increase of 33%. Automotive was second with an increase of 16%. However, I would not be surprised to see a pretty big decline, or at least maybe not a pretty big, but definitely a decline in the automotive segment next year. I don't know if you heard, Braden, but Magna was revising its guidance downwards. I think it was earlier this week. I didn't hear that, but my, I think, two episodes

when I talked about auto, I'm not surprised. I think I'm going to get this right on the auto side, not necessarily on any particular OEM, but on the big macro with autos. And that's what Magna is. They are a supplier of many, many OEMs. Yeah, exactly. Now, operating income increased 22% to $6.8 billion. So really, really good to be honest. Earnings per share increased 8% to $7.44. The operating ratio improved 120 basis point to 60%. For those not aware, operating ratio is a measure of

profitability. It's widely used in the railroad industry. It's the company's operating expense as a percentage of revenue. So it's essentially the opposite of the operating margin. So the lower, the better here. Free cash flow increased 29% to $4.3 billion. However, if you remove the one-time charges related to the failed Kansas City Southern bid last year. It was slightly down. Most of their major operating performance metrics increased. Hold on tight for this one. But they repurchased a whopping $4.7 billion worth of shares during the year. That's more than three times what they had done in 2021.

Something to keep an eye on for the share repurchase, though. Like, that is higher than their free cash flow so i'm assuming they use some of the cash i'm just hoping that they're not using debt to do that and they announced that they would be increasing their dividend by eight percent which is 20 the 27th year of consecutive dividend increases for canadian national rail so that is very impressive they They also announced the authorization to purchase up to 32 million shares for a 12-month period starting February 1st, 2023. They said that their bulk segment would remain strong for the first half of the year,

but they are unsure for the second half. They also foresee a recession in 2023, and they mentioned that North American industrial production is expected a recession in 2023. And they mentioned that North American industrial production is expected to decline in 2023. They are guiding for low single digit earnings per share increases. Now, like I said, I do own CNR and it's a stock I've been wanting to add for quite some time, but it felt like definitely the PE, for example, the valuation was definitely high and staying quite high, despite some of the headwinds that we'll most likely be experiencing, you know, this year and next year, maybe not. But according to most economists, we are looking at the very least at a mild recession. So I think it could provide a really

good opportunity if the valuation comes down a mild recession. So I think it could provide a really good opportunity if the valuation comes down a bit for long-term investors like myself to just be starting a position or adding to it. And I'll just say that Tracy Robinson has been doing, I think, a really good job as CEO almost a year now that she's been in the role. I think it was Jean-Jacques,

Jean-Jacques Rueff, if I remember correctly, before that. And they've clearly placed a focus on returning money to shareholders. The more bearish outlook for the short term for Canadian National Rail, like I said, I think could provide a really good opportunity to add to my position. I think the total returns should continue to be really good for Canadian National Rail for years to come, as long as you have a long time horizon. So that's why I'm pretty excited on this one, despite the outlook looking a little bit bearish for the next year, potentially two years. Lindy Infra business, which is a fancy finance road jargon for saying an infrastructure business that's going to last a long time, which the rails are a perfect example of that. You want negative pessimism. You want to be able to buy the shares at a lower than historical multiple. Bad news is good if you're trying to accumulate

shares in a business that you know has just been in the ground for 100 years and probably going to be in the ground for another 1,000. That's the way I think about this business. And I think that I'm speaking for you, but I think that you're thinking on a similar wavelength here with it being on your watch list and the guidance being not great. Yeah, no, exactly. And that's, that's the reason I have it on my watch list. I'm just kind of looking for the, the multiples to, uh, you know, come down a little more and then, uh, most likely we'll add to my position. I see this as a bit of a foundational stock for me. So I had something that I'd be very comfortable having like up to probably, probably even more than 5% of my portfolio, not more than 10%, but five to 10%, no issues with a company like Canadian National Rail.

Yeah, I can see why I don't own either of them. But them, but it's one of those things where it shows up in your portfolio one day and you're like, you're not mad. You're never mad. All right. I'm going to do something a little different today, which is I'm going to share my entire watch list. I'm not going to do any deep dive into any of them like I usually do. I'm going to just share my entire watch list. And the reason for that is we, well, you can see here on the docs, you know, we launched the sexiest dashboard application on Stratosphere. It's now a central hub when you log on to maintain different lists. What I do personally is I maintain a list for my portfolio, and I maintain a different list of stocks that I do not own, but are high on my watch list. It's a list of about 30-ish names that I'm looking at. What I do track there, because you can change the columns,

I track the market cap, EV to EBITDA, the yield, three-year rev growth per share, and the daily change on the price. So just simple columns. You can track anything, any valuation ratio that you want. I just keep it simple because these are high quality businesses. And then it'll also just aggregate all your quarterly reports, press releases, transcripts, upcoming earnings for that list into one place. Man, I actually, I love it. All right, here's the list alphabetically. So, in no particular order other than they're done alphabetically. Here we go. I just realized the alphabetical is picking A first, but then it's not doing the correct listing on the second letter. So, ASML, Adobe, Airbnb, Amazon, Apple, Aritzia, Axon, BlackRock, CP Rail, Copart, Costco, CrowdStrike, Ferrari, ICE, Intuit, Live Nation, Lockheed Martin, London Stock Exchange, MSCI, Mercado Libre, NASDAQ,

Starbucks, Striker, Taiwan Semi, Texas Instruments, Home Depot, Thermo Fisher, Tyler Technologies, and U-Haul. Those are every single name on here that I do not own that is high on my watch list. So I'm not going to go into any of these names, but I just wanted to highlight that this feature is available. It's beautiful. And you get a look into my actual, every single name that's on it today.

I think it's a pretty solid list. It's obviously like high quality compounder bros. Like there's not many like unique, I need to add more names that are off the board, but I've kind of already added those into my portfolio. So I need to refresh this list with some smaller market cap names, I think, on my watch list. So I'll update

you all when I do that. Yeah, no, it's... Any thoughts on the list? No, it's an interesting, definitely interesting list. I have like some of those names on my list as well. So not too much ad. I think for the most part, they're really good, highquality companies. So yeah, not too much to add there. It's a sleep well at night watch list. I'm challenging myself to put some names in here that I will – my reaction will be sleep less well at night because I need to learn more about them. It's not – that doesn't have anything to do with the business quality. I just need to add some more names in here that I, I need to turn over more stones. Yeah.

That's all. Um, and I think that every investor of individual equities should always be thinking of turning over more stones because that, that's ultimately how you're going to generate more alpha in my opinion. Yeah. Yeah. I had a few REITs in there too. Yeah.

I have no REITs. Like, well, I, I own Equinix. Yeah. No. But that's it. Yeah, no, a few REITs in there too. Yeah, I have no REITs. Well, I own Equinix. Yeah, no. But that's it. Yeah, no, that's right. But that's a very specific sector, kind of subsector of the REIT. And I would say it's probably more dependent on the tech, right, on cloud and tech. Do you just think that REITs are so beaten up that you like them a lot right now?

Yeah, that's still – I mean mean they're not as beaten up but um i think there's some definitely interesting replays and obviously um you know i've talked about it those uh i've been adding to reeds and starting position the past couple of months for that reason but um yeah that's uh probably add a couple you know just for fun balance things things out. Yeah, maybe I should. Maybe I should. I mean, it was the most beaten up sector of 2022. So that doesn't always necessarily mean that there's value, but oftentimes, oftentimes it does. You know, you got to got to go against the grain.

Thanks for listening to the pod today. We massively appreciate every single one of you who tune into this show every Monday and Thursday or catch up when you can. We thank you very, very much, truly. If you have not been to join TCI.com, it is the Patreon page where Simone and I update our portfolios of our actual holdings every single month. And we're recording this on Friday, January 27th. So we got to do an update for the joint TCI.com people very soon. So if you're not a subscriber, the timing is quite good right now at joint TCI.com. It's only $9 Canadian. So it's very affordable. As well as stratosphere.io, I was talking about those dashboards.

You can use this entirely for free. If you do want to unlock multiple lists, you do need to be on the first tier of paid plan, but you can use code TCI from the podcast here and you'll get 15% off. Thanks so much for listening. We will see you in a few days. Take care.

Bye-bye. The Canadian Investor Podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.