The Canadian Investor - The Returns You Can Expect from Stocks & Hut8 Bitcoin Mining

Episode Date: November 28, 2021

In this release of the Canadian Investor Podcast, we discuss the following topics:  Historical stock market returns Hut8 (HUT) Bitcoin Mining stock The returns of mutual funds vs. DIY indexing or individual stock picking Our website https://thecanadianinvestorpodcast.com/ Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Get Stratosphere 🚀 https://www.stratosphereinvesting.com/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

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My name is Brayden Dennis, as always joined by Simon Belanger. And today, Simon, it is American Thanksgiving. So happy Thanksgiving to our friends south of the border Simon you got some family there and you're doing a quick jaunt uh to see some some fam in Syracuse this will be your first time you know crossing the border I guess at this point now yeah yeah it is my first time not the first trip we went to Quebec City for our honeymoon but it's the first time I go to the u.s so it'll be interesting what we'll have to go through already booked my covid test to take in

the states because it's still a requirement to come back to canada so got that booked um we're just a bit early i guess they're waiving the requirement for short trips at the end of the month so a bit early for that but should be. I'm seeing my cousins and they're like sisters and brothers for me. So it'll be fun to see them after more than two years. Wow. Yeah, that'll be awesome. So we're hitting that time, right? Where people are seeing people that they haven't seen in a long time.

And that is just wonderful. That makes me very happy. All right, Simon, today we have a couple of things on the slate. I'm going to talk about historical stock performances and what people should reasonably expect from the stock market. And then you're going to talk about Hut 8, the mining, sorry, not the mining company, the Bitcoin mining company, to clarify that if we had just one dollar every time we got a request for a mining company a bitcoin mining company on the tsx we would be retired on a beach somewhere and then lastly i'm going to talk about just mutual funds the the industry the fees the the fees that canadians have been paying which is just not ideal So I'll get into some statistics around that. All right, to kick it off, Simon, the stock market is a beautiful thing for long-term

investors. You and I know that. We want everyone to know that. However, there are some real statistics that we're going to talk about on what you could reasonably expect. we're going to talk about on what you could reasonably expect. Now, this is data from Vanguard 1926 to 2020 that I pulled up here. A 100% stock portfolio from Vanguard in total market index fund generated an average annual return of 10.1%. Now that is that 10% per year return number that you hear so much about. You come into a new to investing and they go, you can reasonably expect 10% a year from the stock market. Now, statistically, that is very true. You can say 10% a year is a historical return for stocks. That's just a fact. But however, your satisfaction as an investor or happiness equation is reality minus expectations. It is fair to expect 10%

average, but expecting 10% year over year consistently is a recipe for disaster. And here's why. The average is 10%, but the market rarely ever does anything even really close to 10%. I looked at the historical returns on the S&P 500 year over year going back to 1970. The closest the S&P returned, the S&P 500, which is the most well known stock index, this typically returns, you know, this represents the returns of the market, air quotes. Now, during these 50 years, 70 to 2020, the stock market only returned 10% twice, like 10 point decimal something twice. The stock market lost 27% in 1974. The S&P 500 lost 37% of its value in 2008, but it gained over 30% 10 times and a bunch in that high 20% calendar year returns. There were stretches, Simon, like 2000 to 2003, where investors lost money three years in a row. Then S&P 500 had negative returns three years in

a row. Now, the question I have for investors here today is some people who own expensive, high growth stocks, I own a few of them are getting their faces ripped off while the stock market continues to go higher. Like the S&P 500 is at all time highs, yet we're seeing mega drawdowns in some of these 2020 winners. If you got in on Zoom stock, Zoom video stock last year, you made a boatload of money and now you're in like a 70% drawdown in 2021. I ask myself, you know, if you are going to see drawdowns in the future and volatility in the future, what are you going to do? Are you going to stick to the plan? Are you going to have a 2000, 2003 situation where you don't have any returns for years? What are you going to do? Now, my recommendation is not financial advice, of course, duh, but stick to the plan and dollar

cost average. Don't worry about the market so much. If you are today, right now, today, a net buyer of stocks, you are accumulating assets, you are a collector of equities, you should hope for negative stock declines and then you can buy stocks at more attractive valuations. for negative stock declines. And then you can buy stocks at more attractive valuations. This is my quarterly rational reminder for all y'all on the podcast, which is volatility is so normal. It's the only normal thing. So if you're new to the stock market, maybe you got in on 2020 when we had a record opening of brokerage accounts, looking at these historical returns and managing expectations will not only make you a much better investor, but it'll actually satisfy you more when you realize that historical, this

is an extreme bull run of stocks, and it's not reasonable to expect that it continues forever in the future. So that's just my quick look at history, Simon. No, no, it's good to mention. I mean, the 10% is a good number. Personally, when I try to project for my own finances, I tend to err on the side of caution. I'll usually use like 7%, 8% just because I prefer being under-promising to myself and over-delivering than the other way around. And I think it's a good thing to talk about this for people, especially like you said, you know under promising to myself and over delivering them the other way around and i think it's a good thing to talk about this for people especially like you said that started investing after uh like during 2020 right after the big drawdown that we saw in march of 2020 due to covid19 anyone before that is probably better equipped to handle these big drawdowns because

they saw them happen. But in the past year and a half or so, I mean, the markets have essentially gone up and a lot of the stocks that you mentioned have been on tears. And, you know, I'm the owner of some of them. I'm looking at Etsy, Teladoc has had huge drawdowns as well. So it's a good reminder that if you start investing in the past year or so, the markets do not always go up, but they do go up in very long stretches of time. So that's something to always remember. And just keep in mind how you react to when you see those drawdowns

and make sure you can learn from that. And maybe it's a good opportunity for you to keep a little bit of cash. I wouldn't keep too much because you'll get burned by inflation and you'll lose money on it, but keep a little bit of cash where you can actually pounce on those opportunities. Yeah. I like the number 8% when I'm projecting out on personally, like airing out, you know,

it'd be great if I get 10% a year, but if I, you know, if I don't hit that, am I screwed financially? You don't want to be in a position where you're like, I need to get at least 10% returns to make retirement. That's not a good place to be. All right, Simon, let's switch gears to Hut8, ticker HUT on the TSX, a Bitcoin miner, a fascinating company that you delve into. I'm just going to be listening here like a sponge. I might jump in with some questions along the way

because it is not a name I know well. So I'm just excited to be listening here like a sponge I might jump in with some questions along the way because it is not a name I know well so I'm just excited to listen to this yeah it's really the first miner I've really dug into there's other ones that are listed on the TSX and TSX and the and Hutt Hate is actually listed on the NASDAQ as well so it's dual listed before I get started on the company though I just want to mention a little bit of an interesting fun fact about the name of Hut Hate. So it was the name during the Second World War of the building at Bletchery Park where Alan Turing created the BOMB, B-O-M-B-E, a machine that could quickly crack the Enigma code and intercept enemy communication during World War II. And there was a movie made on that. The Imitation Game. The Imitation Game with Benedict Cumberbatch.

That's it. It's a good movie. Yeah. I know his face as an actor. I'll be honest. I always forget his name. It doesn't roll off the tongue. Well, I got you, buddy. I got you. Perfect. And Hut 8 Mining Corp was formed in October of 2017. Now let's talk about management. The CEO is Jamie Leverton. My first impression of her is that she knows what she's talking about. She's very upbeat, has got a great attitude, and is able to clearly answer questions on earnings calls, especially when there was some pretty good questions from analysts, or even sometimes educating the analysts

because you could tell some know the space well, some don't know the space as well. That was very interesting on the earnings call. Personally, I tend to have a positive bias whenever I see a woman as a CEO just based on personal experience, but also some of the companies I've owned in the past. In terms of diversity, that's something else that I like to see. So it's almost split 50-50 between men and women. Their executive team has four women and five men. So basically 50-50 because it's an uneven number. The board is comprised of five members. Two of them are women, including Jamie Leverton. As a side note I wanted to highlight their investor relations side. It's very well done. I was very impressed when I went on there. To me it's really

what an investor relations website should look like. They had governance documents, financial, diversity policies, presentation and more. And they actually have a section where it's a bit of a bitcoin 101 because they do realize that a lot of people may have heard about bitcoin but they're not quite aware of you know all the terms and and everything how it functions right you might know about bitcoin but you don't really know how it works so I thought that was great from their website. That's pretty slick too, right? You want people to at least have a fundamental analysis, like a fundamental understanding of Bitcoin. If you're going to understand, you know, that next layer, which is, you know, how are these things actually hashed and they're done by companies like HUD-8. Yeah,

that's pretty, that's pretty cool. I like that. Yeah, and one last thing about Jamie Leverton. So she's got a lot of experience in tech. She's got 20 years of experience working in technology with some names that people will be familiar. IBM, Bell, BlackBerry, National Bank. She's also got an MBA. Her resume is actually quite good. So I do encourage anyone to go see

on their investor relation website or just look her up on LinkedIn. You'll be able to see it. So it's very impressive from that standpoint. She has an awesome resume. Just looking at this, like this, Jamie Leverton has done a lot of stuff. So that's pretty cool. Yeah, exactly. Now to the basics and understanding Bitcoin and crypto, like in terms of mining.

I just want to go over this. I know for some people listening to this podcast, they already know about this. But based on the questions I've asked, I've had in the past, I think the level of understanding is from people who just heard Bitcoin and nothing else. And people know it quite well So I'm trying to put everyone on the on a level playing field here. So in order to mine Bitcoin computers or mining rigs that they'll often refer them to or Miners have to perform complex mathematical calculation the hash rate That's a term you'll see a lot, refers to the measure of a miner's performance. The higher the hash rate, the better when it comes to a mining company. So an easy way

to make sense of this is the machine, the computer, the rig is actually like, you know, what you would compare with a traditional mining company where the actual miner is going in and extracting the material. In this case, it's a's a computer essentially the ASH rate can be affected by a number of variables including the computer hardware the number of miners and ventilation an easy way to make sense of this is really thinking about computers so let's take two high-end laptops one is a high-end laptop purchased five years ago and one is one that you purchased today the older laptop will obviously be slower when you try the same application than the newer one because technology has evolved over time

in five years a long time when it comes to technology and ventilation plays a big part I know I've experienced my laptops in the past where they like get so hot that the applications go really, really slow or sometimes they'll just shut down. So ventilation is the same thing for these mining rings. It's very important. Have you experienced that a bit in the past? Before I replaced my MacBook Pro with the new one, my MacBook Pro over top of the battery,

I kid you not, like I'm not exaggerating, you could come close to frying an egg. Like, I don't even know, I don't know if I had a lemon. It always burned hot like that. Or maybe that just all MacBooks have that problem. But if it would get really hot, the fan would start going. And then, like, I couldn't even record the podcast. Like, GarageBand would just remember remember back when we had my old laptop we were just shut down my whole thing would shut down that's because my

my uh my computer was hot you can fry an egg it was ridiculous which made it a nightmare for me okay simon was a trooper back when i had a crap computer yeah exactly and that's why desktop for like um you know they tend to perform much better because there's more space for ventilation than a laptop. But now the last variable for hash rate is Bitcoin mining difficulty. So the Bitcoin protocol is built in such a way that over time, over long periods of time, the mining difficulty increases and makes it harder to create Bitcoin. difficulty increases and makes it harder to create Bitcoin. The protocol is made to adapt itself as the global hash rate varies especially on a short-term basis. For example in the spring of this year we saw China impose a mining ban which

affected a large portion of the global hash rate. So the global hash rate actually dropped by more than 50% because of the China mining ban back in May. To compensate for that, the Bitcoin protocol automatically made mining easier to encourage more miners to go and do those processing transactions, which is a very integral part of the Bitcoin protocol because it makes sure that the transactions are processed in a timely basis, but everything is kept on the Bitcoin ledger. We're not quite back to the peak hash rate that we saw in May just before the mining ban, but we're actually very close. So that as a side note, that's very bullish in my opinion for Bitcoin because people, a lot of people were saying governments could just ban Bitcoin and it would go away. And if there's any government that can act unilaterally, it is China. And we're seeing

that the Bitcoin protocol is very resilient. A lot of miners moved out of China, neighboring countries, a lot of them moved to North America. So we're seeing now that hash rate pick back up. now that hash rate pick back up. Yeah, let's double click on that for a second because China banned Bitcoin miners in the country. And then I saw these pretty cool photos of big freight liner airplanes taking fully packed to the top of these huge airplanes, fully packed to the top of these huge airplanes, just full of mining equipment, of Bitcoin mining equipment, like servers, floor to ceiling, and them shipping them out of the country to go somewhere else. Very interesting. There's a geopolitical thing happening there. This was a big test for Bitcoin, I think. Yeah, definitely. And now we're actually seeing North America being more and more open to the

Bitcoin industry. And I know we're diverging a little bit, but it does go well with the hate conversation. I mean, we there is the Miami mayor, the New York mayor, the new one that was elected. They're kind of fighting to get some of the Bitcoin industry to invest in their city. I think even one of them, if not both, even converted their paycheck right away to Bitcoin just to show how supportive they are. And I think Miami will be accepting tax payment in Bitcoin as well.

So we're really seeing that shift, and I'm happy to see that because there's a lot of development in that space, and I think it's great that we're seeing that shift in North America. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense, and with them, you can buy all North American ETFs, not just a few select ones, all commission free, so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA

account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is Questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot

of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at Airbnb.ca forward slash host. That isbnb.ca forward slash host. That is airbnb.ca forward slash host. Now on to the business. So I did the little primer just to make sure that everyone was on the same page.

HUD-Hate has three main revenue streams. So the first one is mining Bitcoin, obviously. The second one is mining Ether for the Ethereum network and then getting paid in Bitcoin. And then the third one is lending Bitcoin through Genesis and Galaxy. Their current lending rates are 2% and 2.5%. I think this is actually great because it does spread out where they keep their Bitcoin. They also have a custodian for the rest of their Bitcoin. So not all of it is stored and getting interest on it. They currently have 2,000 Bitcoin in these lending agreement.

One thing you'll notice when you listen to conference calls is that they reference huddle a lot. So huddle is a term they use frequently. And essentially, it means hold on to dear life. It's a term that you'll hear a lot in Bitcoin spaces, Bitcoin Twitter. Basically, you buy Bitcoin and you just hold it for the long term. So you could even say that we're hodler when it comes to stocks because we just buy and hold on for dear life. But I definitely believe in that strategy for Bitcoin myself because I do own them and they did mention that they did not sell any Bitcoin during the third quarter which kind of goes in line with that strategy and as of November

10th they held 5,053 Bitcoin in reserve which was was worth around $430 million in value. In terms of share issuance, which is the primary way that they get financing, they don't really do any debt financing. They've raised over $400 million this year. The main goal for them is to continue investing in equipment, growing the company, and selling as little Bitcoin as possible. So they've also made some strategic agreements through power purchase agreements or PPAs. So the PPA allows them to have cost certainty for power to a certain degree because there is an annual re-evaluation of the rate.

annual re-evaluation of the rate. So those rates can actually vary about 10% in term of escalators, depending on the costs of the producer. But it's interesting that they're kind of leveraging that to be able to have a bit more cost certainty. It's interesting that they have these PPA set up for one year. I think it's smart. It gives them some security on their expenses. I think they're longer than a year, but the escalator clause can be applied every year. That's what I understood. Yeah. Yeah, that makes sense. Now, it would be really difficult. I almost just maybe because I'm a complete math nerd and do Excel spreadsheets for fun, but I'd be interested in kind of trying to project out what the real earnings power of the company is because yeah, you have this, it relies so much on the Bitcoin price, right? Like on the actual price of Bitcoin. Yeah. But I mean, if you look

at it from a market cap today, you know, what the value of the Bitcoin is on their balance sheet, how much they can actually mine per year, and then adjust for all this dilution, right? Because there's no real cashflow in the business, right? And you're going to talk about that in the next segment here, but there's no actual cashflow from the business because they generate the Bitcoin and then it gets thrown on their balance sheet. How do you finance the business? How do you pay for electricity? How do you pay for the leasing agreements? Well, you have to issue stock. So you dilute the company, you dilute shareholders. Now that could be a good thing. That could be the

lowest cost of capital for them. I just don't know those answers. So maybe it'd be fun to kind of model that out, but it's very different from looking at a normal business. Yeah, yeah, definitely. It's very different. I mean, on the one end, and I will talk about the financial statement, they do have the flexibility to sell Bitcoin if they need to, they choose not to and they prefer getting equity. So that's the approach that they're taking. And obviously, we've seen like Michael Saylorlor with micro strategy uh which became famous for putting uh being one of the first publicly traded companies to put bitcoin on their on their balance sheet and basically what michael saylor is doing he's getting debt then using that to buy

bitcoin but michael saylor and micro strategy has some steady cash flow so they can service that debt with the fiat income or free cash flow that they get from their regular business so i i do like that strategy for michael sailor because it makes a lot more sense but mike but um hut eight mining doesn't have that type of business where they can rely on stable cash flows right yeah that makes sense that's pretty cool what sailor has done but yeah let's keep going with this one yeah so they have other types of agreement the other uh agreement that i found interesting that i wanted to mention is the one with micro bt to purchase miners at preferential

prices they recently executed on a 58.7 million usd contract to 12,000 new machines from MicroBT, which could start being delivered in January of 2020 at the rate of 1,000 delivery per month and fully delivered by the end of 2022. If everything goes well, if there's no issues with supply chain, obviously, you know, there could be, but that's what they're anticipating. In terms of their facility, they have two mining sites in Alberta and another is announced in North Bay, Ontario. So I'll take a little pause here and kind of get back to what I said earlier about heating and making sure that, you know, your computers are kept cool. Well, there's a reason why they're up north like that. It's because in the winter specifically, you know, they save on a lot of heating HVAC costs by having those computers there. Because if it was, you know, 40 degrees year long, can you imagine how much it would cost to just making sure the ventilation and it's cool enough, right?

Yeah, the variance in HVAC costs based on where you're generating, where you're actually mining this Bitcoin is massive. Now, another thing to look at is in that jurisdiction, what's the power grid look like? Right. And I know that some of these Bitcoin miners have been like, hey, look, you know, we have our operations in Quebec, which is 100% on hydro, and we can use that excess baseload that they generate on hydroelectricity. So it is important, I think, from my perspective, to look at the jurisdiction of where this power grid is. Drawing all those gigawatt hours per year in Quebec is not the same environmental impact on drawing them all from Texas or Alberta. No, that's a good point. And I'm going on memory here. I think they mentioned that on a conference on one of the earnings calls. And the facilities in Alberta, I believe they're dedicated in terms of natural gas production that powers their electricity there. So I think they have that's part of their agreement. I don't want to elaborate too much on that, because that's the one part I didn't dig too much in. But they do have these type of agreements.

And aside from that, I think it's either natural gas or renewable sources in terms of energy. So the North Bay facility that I was talking about is actually expected to be online by the end of this year. However, it won't be fully up and running until later in 2022. The main reason is because of that micro BT order that I just mentioned. So as the computers or the mining rings start arriving, that's one of the places that they'll be putting those new computers they'll also be replacing some older equipment in their Alberta facilities as well one of the things I found interesting in their earnings release is there are some elements that they wanted to highlight that they control and some that they don't control

first of all what they say that they control is their own hash rate, the cost of electricity, and obviously there's that kind of variable. Of course, with the PPAs, it could go up to 10% corporate expenses. These are the three things they say to control. And then what they don't control, the network hash rate, so the Bitcoin network hash rate, the price of Bitcoin, the block rewards hash rate the price of bitcoin the block rewards and the number of blocks per year so the block rewards is refers to the halving of bitcoin so every i think it's every four years there's a halving cycle which reduces the reward by half that miners will receive when they complete blocks and the price of miners in general, miners in terms of

their mining rigs. The only thing I'd comment on that is they have some, I guess, bargaining negotiation power on the cost of electricity because they are such a large consumer. That being said, electricity is a commodity. Fun fact, electricity is the most volatile commodity in the world. Fun fact. So I don't know if it's really in their control. Maybe that's in their circle of influence, but not really necessarily circle of control. Just one comment. Okay, no, that's good. That's fair. Now looking looking at the i wanted to mention older machines newer machines and of course i'll talk about the financial statement but the older machine it's very interesting to look the way to look at it because the older machines will already have been

depreciated um and on the balance sheet so they are more profitable if you look at it from an accounting perspective. But again, like I talked earlier, older machines won't be doing these mathematical calculations as quickly. So that's kind of the downside of older versus newer. And then the downside of newer is that it does impact their earnings because they're being depreciated. The financial statement, you referred to that a bit earlier, they are a bit wonky to look at. Basically, kind of forget everything you know, especially about free cash flow. I know I harp on free cash flow a lot, but I'll go over this. I'll explain why it really doesn't matter for a mining corporation. But it takes some time to look and make sense of their financial statement. So for the first nine months of the year, their total revenue was $115 million.

Then they subtract expenses, just like regular earnings, which are their site operating costs, depreciation, general and administrative expense. And there's also a few other factors in there, but those are the biggest expenses line. Then for the first nine months, they had a net income of $38.5 million on revenues of $115. So remember those figures as I'm going through the cash flow statement. So where it gets tricky, it is here. So the revenues from BTC or digital assets mine is then subtracted from the cash flow statement because they are being stored and lended so they don't generate the equivalent in fiat. If they mine that $115 million worth of Bitcoin and sold them right away and got cashed, then that would be completely different. But that's not the case for them.

So they actually have to remove that from the cash flow statement because it's essentially a non-cash item. But that allows them to put it on their balance sheet and then they're able to have that as digital assets. So that's why it's a bit wonky looking at that. Basically, you know, just forget everything you know about FreeCast when you look at them. Forget everything you know about accounting when you're looking at this stock. And this is why it's probably just so hard to value. How do you value this thing? Like I was just talking about before about maybe maybe trying to project how many Bitcoin they can actually mine against their market cap. What's the value of the

Bitcoin? The whole thesis here depends on me believing that the price of Bitcoin is going up. That is a requirement of it being invested in a bitcoin miner you you have to believe that the price is going the price of bitcoin is going to be higher in a few years than it is now especially a bitcoin miner that is explicitly saying that they're doing a huddle strategy and trying to sell as little possible in terms of bitcoin so right totally totally agree with you on that you're buying into the fact that i'm willing to get diluted a lot, like $400 million with its stock issuance, because I believe the price is going up of Bitcoin. Exactly. I believe the price is going up of Bitcoin, and I believe this management team will keep executing on their hash rate and continue increasing that over the years and therefore

mining additional Bitcoin. So that's really the premise here. If you don't believe in Bitcoin, then by all means, don't invest in this company. Stop listening. Listen to all the ads first and then keep going. Yeah. Okay. That's it. So having said that, the balance sheet is really important when looking at their financial statement. Their balance sheet had just shy of $500 million on its asset as of September 30th, 2021, which is a 5x increase from December 31st, 2020. And they had $220 million of that in fiat in Canadian dollars. of that in fiat in Canadian dollars but like I mentioned earlier it's actually more than that now because their financial statements are as of September 30th 2021 but they actually mentioned in November that they surpassed 5,000 bitcoins in terms of assets so you'll see those assets that they'll be quite volatile because it definitely varies based on the fair market value of Bitcoin at the reporting date for their financial statement, which was $55,793 Canadian dollars as of September 30th, 2021. So it'll be interesting when they release their next financial statement because Bitcoin has gone up quite a bit since then. So in terms of debt, they have

very little on their balance sheet. They do most of their financing, like I said, through equity financing. All in all, for me, it's a really interesting play. If you're looking at an alternative to invest in Bitcoin, a lot of people, I mentioned this company, including Len from the Canadian Bitcoiner podcast. And a lot of people want me to review this one

along with the other Canadian ones. It's something I would be able to do at a later date, but it took me about like five hours of research to get this dive into HUD hate mining. So you can imagine it's definitely time consuming, but I'd be happy to at some point in the future compare them with the other, I think there's a couple other ones that are pretty popular just to see how they compare.

And if they also have the same kind of huddle strategy or they're more looking to mine, sell, and then get the fiat in return. It's a very interesting case study into something very different than what we usually talk about, which is businesses that generate cash flow in dollars. This is a business that is generating Bitcoin, the actual commodity, and then throwing it on their balance sheet. It's like if a gold miner mined gold and then said, hell no, we ain't selling a single ounce of this stuff. We're throwing it on the balance sheet and we're going to issue stock to pay for our mining operation instead of selling a single ounce of gold. Is that a fair comparison? Is that a simplification? Yeah. And I mean, look, I think there's something to say that if you look at the

past decade, Bitcoin has performed extremely well. say that if you look at the past decade, Bitcoin has performed extremely well. Of course, it's not the same track record of what, 1925 that you had in your earlier segment for stocks. But I think there's a case to be made. Obviously, I'm a little bit biased here because I'm very bullish on Bitcoin, but there's a lot to like about this business and definitely something interesting as an alternative to a Bitcoin ETF if someone wanted to have that in a registered account. But again, I will stress this. This will be volatile. It will follow the price of Bitcoin. It's not for the faint of heart. And don't invest in this if you don't want exposure to Bitcoin. Or if you don't like volatility, because you will be on a ride with this thing. Just food for thought here. You mentioned September

30th, Bitcoin had a price at the end of their Q3, September 30th, of $55,793 Canadian dollars. Today, right now, I just checked, Bitcoin trades for 75,000 on the dot Canadian dollars for Bitcoin. I think it's like 74,990 or something, right? We'll call it 75,000 as of today on November 25th. So this is the kind of ups and downs you see in this digital asset. I mean, September 30th wasn't that long ago. So something to consider if you own the stock. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense, and with them, you can buy all North American ETFs, not just a few select ones, all commission

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

But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at Airbnb.ca forward slash host. That isbnb.ca forward slash host. That is airbnb.ca forward slash host. All right, last segment on the show,

switching gears quite a bit from the Bitcoin miner. I'm going to talk about mutual funds and kind of a systemic problem in this country and why Canadians deserve better. You know, the people of this country, the hardworking people in this country, and you know, this just, this goes for international listeners as well. You know, you deserve better because the options out there are superior to mutual funds. Let's use this as a segment where you share it with a friend and you say, hey, take this timestamp because this is when your friends and family invest in mutual funds and you're going like, you like want to rip your hair out because it's infuriating

and it makes very little sense to invest in mutual funds in this day and age, especially in 2021 when the access to discount brokerage services is so easy. Anyone with an internet connection, I say, can do better than mutual funds. So let's level set first. What do these places that sell mutual funds have in common? They all have in common that they want to make money via fees, regardless of what happens in your portfolio. Now, you might trust the very nice person sitting at the front of the office that you go into. And the problem with that is they have very little requirement to have any real financial know-how. I think they have to pass the Canadian securities course to sell mutual funds, but again, not hard to do. Let's just say that they wouldn't even understand a good portion of the concepts on this podcast. So if you're listening to the podcast, just know,

by the way, you are ahead of the game. Now, if you walk into these services, they're going to layer on fees where they can. It's their business. And if you're an advisor or, you know, working in the industry, I'm not a hater. You know, you got to get your bread. I get that. You know, this is a business. I'm not stupid to that. However, I do think that people who are listening to a do-it-yourself research investing podcast that you can do better than what's that option that's out there. Now, I'm going to show you why paying high fees for lousy performance, aka mutual funds, is just not ideal when you can get index returns or invest in

individual stocks with next to zero fees. And if you go with an index strategy, zero investing skill. Simon, do you think it's fair to say that it requires literally zero barriers of entry to roll out a passive index ETF strategy? I mean, I would say it's a very low barrier to entry. I mean, let's not underestimate how lazy some people can be. So I think that's, I mean, I say that as a joke, but it is true. But I mean, for the most part, right, any broker that you would be with, you can very easily just go on YouTube and find a quick video on how to execute a trade

and be able to buy one of the tickers that you'll mention about broad base index ETFs. So very low barrier to entry, but I would not underestimate the level of laziness for some people. And that is a very fair point. So maybe a barrier to entry and laziness, but no barrier to entry in actual skill. Buying the index does not require you to have an accounting background, have relatively any good temperament and hold like you would see on

the volatility of an individual stock like Hut 8. So from that perspective, anyone can do this, I believe. Anyone with an internet connection can do this. Now, in terms of poor performance from mutual funds, let's look at some stats. As of December 31st, 2020, so at the end of last year, S&P Global showed that the 10-year average mutual fund for a fund tracking Canadian equity via the TSX composite index was 5.76%. I look at that and I go, it's not terrible. I mean, close to 6%. That's kind of the number that gets thrown around for average mutual fund returns. That sounds all right. However, the TSX Composite Index during that time returned 9.62%. returned 9.62%. So someone who did nothing and just owned the index and didn't pay fees did better. Now this tear, go ahead, Simon. Yeah, I wanted to mention, and that's a great point,

you mentioned the 6% compared to the 9%. And it may not sound a lot like you just mentioned, but I encourage anyone to take these numbers, take the differences, plug them in a compound income calculator over long periods of time with actual numbers behind it. So, you know, $15,000, $10,000, whatever you want to use, put them 10, 15, 20, 30 years, look at the different, every single different scenario, then you'll see the impact of that difference in returns. And for me personally, it didn't hit me until I actually used that and used those actual numbers. Now, that is a great point that you brought up because it's been years since I did this calculation. If I recall correctly, the numbers were,

I was using $5,000 a year, which was before, like, I think it was 5,500 actually, because that was the TFSA limit. I was saying, okay, if you invested $5,500, which was the TFSA limit at the time, now it's 6,000, every year compounded at the 10% the stock market has done, you know, the index return, At the 10% the stock market has done, the index return, compared to minus 2.5% mutual fund fee, the difference of just 2.5% per year over a 40-year compounding period was $320,000. Yeah, it's mind-blowing. $320,000.

Now, that's a significant amount of money for people entering retirement, right? They're going to need that. It doesn't hit you until I find you do that little exercise. There's compound income calculators very easily. You can find them very easily online. It'll take you five minutes. Actually, I find it pretty fun to plug in the numbers and play with it. Yeah, it is fun. I agree with that. Okay. So let's look more about this terrible performance

and the egregious fees. Now, what is out there in Canada abroad is this, you go to this institution because you want to start investing. You got a new job or you looked at your cash pile in your bank account and you go, wow, I should probably be investing. All my friends are doing it. Now people listen to this podcast probably are, but this is the type of scenario that happens. You are going to be funneled into high fee products because it is their business. Again, not a hater. Everyone's got to make their bread, but this is the type of thing that people are going to get funneled into. So if I look at, we just looked at some performance in Canada, let's look at the S and P 500, which is the U S a well-known, this is the most well-known

stock index in the entire world is the S and P 500. Let's compare it to the largest ETF with assets under management that tracks the S&P 500, SPY. Now, I'm not even going to include the 1.5% dividend that you get from SPY. Just throw that on there as icing on the cake for why you should just buy ETFs instead of a mutual fund or individual stocks, which I'm going to get to later. So if you look at the five-year return of US large cap stocks, mutual funds, mutual funds that track US large caps, you had a five-year average annual return of 12.98%. During that time, SPY did 16.8% that ETF. If you look at 15 years of data, percent, that ETF. If you look at 15 years of data, mutual funds tracking US large cap stocks did 8.66%. It's pretty good. That's pretty decent return until you realize that you did absolutely

nothing, paid zero fees with SPY and got 13.30%. That is a lot, Simon. That's like, what is that? 5% better? 4.7% annual over 15 years. That is not insignificant. It is quite actually statistically significant. All right, well, let's look at some more Canadian data. The average annual management expense ratio in Canada for equity mutual funds is 2.23%. And among the highest fees in the world, according to Morningstar. It's around 1% or less in the US, for instance. You can see that disparity in why Canadians are

getting screwed. 88% of Canadian equity funds underperformed the benchmark in 2020. That's pretty brutal. I'm just looking at that. It sounds like they didn't, I'm just looking at that. It sounds like they didn't own enough Shopify. This is in line with the 84% that did so over the past 10 years. On an equal weighted basis, Canadian equity funds returned a bleak 4.8%. This is from Morningstar. This is from Morningstar. That's not good, dude. That's pretty bad. So if you compare it to ETFs, some of them you can buy for 0.05%. 0.05%, just to reiterate that. This is not to mention that only 20% of mutual funds actually outperform these very, very low cost products like exchange traded funds. So what you can do, I've addressed the problem. What can you do? Well, you can buy individual securities like you probably already do. The stocks we talk about on this podcast,

we have model portfolios on stratosphereinvesting.com. And in the model portfolios on stratosphereinvesting.com, I even have one for exchange traded funds. Now here are four exchange traded funds that trade on the Toronto Stock Exchange that give you global equity exposure and have very low fees. VCN, Vanguard's Canada all cap market. XUU, which is iShares core S&P total market. This is thousands of stocks in the US, 0.07% management expense fee. iShares core MSCI, ticker XEF, covers stocks in Japan, Australia, lots of Europe. These are developed developed markets and then vee which is vanguard's emerging markets etf you're going to get stocks in there like china india brazil more now another option is you can do something like xeqt on the tsx which is an all-in-one portfolio for global

stocks you know you get thousands of stocks it's's wonderful. Now, anyone with an internet connection can do that. It's pretty easy to do. It requires zero skill and you can be diversified into thousands of global companies with very little fees and better performance. Now, here's the or, Simon. Or you can do what Simon and I do, which is do your own research on high quality individual stocks and hold them for the long term. Now, Simon, I know that you do a hybrid approach, right? You own some low cost index funds. And that's what I had always done until I do this full time. So I have high conviction in some individual stocks. But I know that you have, for instance, in your portfolio, a mix,

right? Yeah, I do have a mix. I have some index fund. I also have some more sector specific. I have like some small cap technology ETFs that are slightly higher fees, but way lower than 2 point whatever percent. But that was the best option. But yeah, I do both because I have limited time in my everyday life. So I'm cognizant of that. I have a lot of competing demands and I just have so much time to dedicate to individual businesses. So I kind of try to stick to about 15 different individual stocks and diversified with some index funds as well. Yeah. So there you go. That's a great strategy. The main thing here is you're not paying high fees for crap performance. Simon's performance is actually pretty good. Not to pat ourselves on

the back, but Simon, you and I have absolutely demolished the market for years now. I'm not trying to say we're like some super investors but you know what is our edge we just hold on we hold on to good companies we huddle baby the takeaway here anything's better than actively managed mutual funds anyone can do better passive etf index investing is a million times better than going to these institutions and getting sold their products. If you listen to this podcast and you're doing your own research, then owning individual stock can also be a great way to go. That's what I do. Both scenarios here, whether you're holding ETFs or you're holding individual stocks,

we go back to the historical stock market returns that I went through on the beginning of this episode, which is it requires patience. There's no other way to explain that this requires a lot of patience. There's absolutely no get rich quick in the stock market. When you go on social media or you go on whatever it is, you will see all kinds of trading strategies. This is complete garbage. This is terrible. It's complete garbage. You want to buy and hold investments, whether it's holding onto these index funds or great companies that are going to be bigger and better in the future. You got to hold onto them. There's no get rich quick scheme. You have to have

patience. That does it for this show, guys. A lot of data. Simon and I, how many pages is this? 351 pages of notes for this podcast. I don't even think we started it that long ago. We didn't have it at the beginning, did we? No, I think it's been maybe a year or so. Yeah. We would have like separate documents or our own documents before that.

And then we just found that using the same one so we can follow along. Yeah. We can both see what's going on on the show. Yeah. It makes a lot more sense. 351 pages. God, that's a lot. Thank you so much for listening, guys. And for our American friends, happy Thanksgiving. It's now into the first

football game, Simon. I love American Thanksgiving because I can have some football on, some NFL day football on in the background while i work i don't know how much work i'm gonna get done this afternoon but um i'm loving that question for you yeah like what's bigger in your mind the super bowl or today from a football perspective oh ah the super bowl for sure super bowl okay but would thanksgiving be higher than any of the like the playoffs games before the super bowl in terms of total viewership probably yeah i would say so because it's on in the background of every like american thanksgiving probably i've never been to an american thank you but just your enjoyment i would say yeah yeah i know it's

pretty cool i guess the other thing is like the super bowl is even if you have zero interest in football you're probably gonna be you know yeah eating wings and fries and nachos and watching the game yeah you're tuning in for the halftime show that does it for this week, guys. Thanks so much for listening. I really can't. We passed a million streams. Simon, a million people, not a million people. So that's probably a stretch. A million listens or streams on the show. So I wonder how many people that is. I don't know. Thank you so much for listening. If you have not checked out stratosphereinvesting.com, If you have not checked out stratosphereinvesting.com, you can find all their financial statements and ratios. And it's that, that part's completely free. So you can check that out at stratosphereinvesting.com.

If you're new to the show, we do episodes on Mondays and Thursdays, an episode like this on Monday release, we talk about investing strategy, some of the big picture stuff like today. And then on Thursday, we talk about earnings releases, companies we care about. And we think that that provides a pretty good balance. So thank you so much. If you haven't given us five stars to subscribe to the podcast on your player, we really appreciate that you do that. See you in a few days. Peace.