The Canadian Investor - These 4 Quebec Rollups have Crushed the TSX

Episode Date: February 5, 2024

Welcome back to the Canadian Investor podcast with your hosts, Simon and Braden! In this episode, they dive headfirst into the captivating universe of Quebec-based rollups, exploring why some of these companies have emerged as the best-performing stocks on the TSX over the last few decades.  Simon and Braden tackle a burning listener question about covered call ETFs, unraveling the complexities and shedding light on whether this strategy aligns with various investment goals. As the episode unfolds, stay tuned for a thought-provoking discussion on the potential traps of "starter positions" in your portfolio. Tickers of stock discussed: ATD.TO, QQQ, QYLD, GIB-A.TO, TFII.TO, WSP.TO Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Sign up for Finchat.io for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. The Canadian Investor Podcast. Welcome into the show. My name is Brayden Dennis. As always, joined by my favorite French Canadian, Simon Belanger. And the reason you're getting that today is we're going to talk about Quebec in the first segment today,

but you're, you're also wearing red. You're like in the spirit of the show today, brother looking good. Yeah. I mean, I'm excited for this one. I think it'll be a fun episode.

A lot of it for at least what I'm going to be talking about is coming from a listener question. So something that I know you'll chime in. I think we have a similar kind of approach to that. So it'll be fun too after the whole Quebec segment. Dude, so you and I are just talking about, we got to do our joint tci.com updates. Go support the show.

We do our monthly portfolio updates on the first of the month. And I'm sitting on way too much cash. And I don't know, like I have a bit of decision paralysis here and I got like, I got to figure it out here, man. Don't be like me. Like I let four or five, like kind of DCAs go into the account with no action. And now I'm just sitting on all this cash and I messed up, dude. Don't be like me. I've been complacent over the last three or four months with deploying cash. Luckily, the things that I do own have been

working really well, but don't be like me. Is it just because you're too busy or valuations are too high? I know you have a lot of ideas when it comes to investing but maybe not like any ideas that like is screaming by right now i don't think i've had a slam dunk new idea that i have a lot of conviction in in like four or five months ish and you can and and that shows in my portfolio yeah like this is which is totally fine. Like I think last year, I mean, my main thing was to just like be even more concentrated than I, than I already am. And, and I think I did that quite well and the results worked, but yeah, man, I think I just got to turn over some more, more new leafs, but valuations have certainly become less attractive. Like I was pretty excited about a lot of stuff early last year.

And things are just ripping again. And it's not just tech. Like everything is kind of ripping right now. I just saw Constellation hit $80 billion in market cap on the TSX as of today. Like, you know, holy, things are going up and to the right. Yeah, and you posted a tweet, I't or an x or whatever uh whatever we want to call it but you posted something about like a video about a market commentator saying like talking about the high valuation and making up this new kind of way of looking at things yeah that one i thought was good because it definitely feels like things are

when you start hearing stuff like that on like cnbc or bnn whatever it is it's it feels a lot like stuff when things are extremely bullish and near the top i mean i'm not saying it could go on for months if not years we don't know but it's just the way the things you start hearing it's like okay everyone seems to be like on this one end of the spectrum there's kind of warning bells that go in my head not don't take this as i'm not investing i'm still dollar cost averaging a lot of it with index funds so it's not like i'm not investing it's just something i notice as well context, I think she was the head of research of, I think it was Morgan Stanley.

It was one of the bulge bracket investment banks. I think it was Morgan Stanley. If it wasn't, it was one of the other major. This wasn't someone just off the street. This was one of the head of research of one of the major big investment banks. And she said, you got to pay up for quality. And we're actually using a new metric called price to innovation,

PI, price to innovation. And of course, eye rolls everywhere because- How do you quantify that? You can't. It is a justification for buying frothy shit is what priced innovation is. Move over, priced earnings. This is priced innovation. You should use that when you do another funding round with Finchat and just say,

our price to innovation is... We have the lowest price to innovation of any venture-backed startup you can find i've i feel like you'll be laughed out of the room if you say yeah i mean i'd hope so i mean if i'm dealing with someone knows what they're doing i'd hope so yeah kathy wood walked so the morgan stanley person could run yeah they. Go on CNBC, say some outlandish crap, get a lot of assets under management, profit. Step one, two, and three laid out. All right, let's talk about Quebec-based roll-ups today, Simon. This is my first segment of the day.

And you were born, when did you move across to the Ontario border to Ottawa? You were born in Quebec. Yeah, on a more permanent basis, about 10 years ago. Okay. I thought it was longer ago than that. Okay, got it. So we're going to play a game called Witch Quebec-based roll-up, Simone. Last time we did this was which Bedard.

I don't know if you remember that. It was Elaine Bedard versus Connor Bedard. This is which Canadian based roll up. I got five questions in four companies. So I didn't want to make it too easy, but didn't want to take too long. So the companies that we're talking about today are Couchetard, ticker ATD.

CGI, ticker GIB, I think it is, TFI International, ticker TFII, and WSP Global, ticker WSP. Now, these companies have been monster performers, and they all share something in common. They have roots based in Quebec, and they buy a lot of companies. They are roll-ups. They buy this fragmented industry that they operate in. CouchTard, it's convenience stores. For CGI, it's tech consulting. For TFI International, it's trucking. And for WSP, it's civil, mostly civil engineering firms around the world. So here you go. First one, Simone. This company aided the European Space Agency's Rosetta mission and has been involved in the launch of over 200 satellites.

Going to go CGI for this one? Correct. The only tech company on the list. Correct. In fact, they have been involved in space, I didn't know, since the 80s. And so that's been an interesting fun fact. In 1987, this company purchased

Seven Jours, a chain from Metro, which they have kept that brand intact to this day. Yeah, that's Limontation Couchetush tall i'm pretty sure correct they've moved over almost everything to silk okay but there's a few brands that they've kept in quebec yeah local to their roots yeah i think i vaguely remember maybe seeing that brand when i was like a kid i don't think they have them anymore very rarely and yeah for the

most part i haven't been i haven't like kept an eye on it in terms of what brand they use the most in quebec i'll have to let you know next time is it max yeah they have to have the um they used to call it just kushta it's just kushta right that's the yeah yeah kushta yeah they just would call it but the same like i think they had the same owl does that yeah is that late night what is that how does that translate late night yeah late night yeah okay apparently the logo goes to bed late goes to bed late depending okay got it apparently the logo was like i was looking on wikipedia go to wikipedia and apparently the logo used to be like like a person who was like sleeping yeah yeah yeah yeah, no, that's right. Okay, I've never seen that, but you know, okay, you can verify. Since 1988, this company has acquired 195 companies

and have completed an acquisition on every continent of the earth, except for Antarctica. But I had to look because there was every single, Except for Antarctica. But I had to look because there was every single continent. I found one acquisition that filled all seven minus Antarctica continents on Earth. Yeah, if I had to guess, probably WSP on that one. Correct. Yes, they are probably the most global.

They're all global except for TFI. A management team is infamous for showing up unannounced to audit the operations of their company on an individual location basis. Well, I'm going to go with the last one standing here, TFI. No. Or TFI. This is CouchTard. They are infamous for going to the locations, these convenience stores, and being meticulous about the operations.

Meticulous about how they're run. Meticulous about the optimization of the stores. And they still do it today, allegedly, even after all these years. And yes, there's one less standing here. In 2021, this company did a carve out. TFI. In 2021, this company did a carve out that literally doubled their top line and EBITDA in one deal. That was TFI. Yeah. Wasn't that the UPS last mile deal? Is that it? That's exactly right. They carved out that thing's LTL from UPS Freight.

And now if you notice, you might notice this next time you get a package from UPS and they give you that tracking number, it's still branded UPS. If you click on the tracking in the footer, in the small text, it'll say UPS LTL or SPS Freight, forget what it is, is owned and operated by TFI International. So you'll still see UPS still doing your last mile delivery there in terms of the branding, but it is owned and operated by TFI, which I think is quite interesting. So Simo, here's some graphs, some visuals, and some data on how this group, these four companies have done because it's been tremendous. Since the time where they've all been public at the same time, which is 2006,

May 25th, 2006, so around 17 and a half years, WSP has compounded at 22.8% for a total return of 3,703%. TFI has compounded at 18.6%, a total return of 1,945%. CGI has compounded at 18.4% for almost 2,000% return. Couchdard, another 2,000% return at 18.5% CAGR. So those have been almost identical. If you invested that day, a $10,000 into equal weighted 25%, 25%, 25% portfolio, your $10,000 would be worth $309,541 today. Since IPO, these companies have compounded, in this case of CouchTard, over 34 years for 493,000%. One of the best performing stocks of all time, of all time, not just in Canada, of all time around across the entire globe. Absolutely fantastic. You've had monster returns yet over 100,000% for CGI. So 100 bagger and

43,000% for TFI, 3,700% for WSP. It's been public the least, the least longest. And then this last graph here that I have here is just on FinChat, just graphing out their operating income of all of them since they've all been public in May 2006. This is why these companies have done well. It's not some magic fairy dust that the investors love these companies. It's the fact that every single one of them have compounded operating income, EPS, free cash flow per share, whatever metric you want to use, at double digits for multiple decades. That's all. The stock follows the weight of gravity with these companies,

and the results have been tremendous. So what can we learn from this, Simone? One, Quebec-based roll-ups seem to be very good at capital allocation. The management team for these companies have been around for a long time. A lot of times, it's still run by the founder. And many, at least two out of the four, I'd have to look, at least for Alain Boudard and I'm forgetting the Couchetard guy's name. What's his name? Alain Bouchard.

Not to be confused with Alain Boudard. That's right. That's why I was forgetting. So it's management team, skin in the game, good at capital allocation and patient. Couchetard turned down a deal to buy something for 22 billion. They got outbid by 7-Eleven. Instead of FOMOing and trying to

CPC and rail them, they just said, okay, that's too much. We'll move on. And so these companies are very good at capital allocation. Yeah, I don't know about CGI because I'm not as familiar with their business. But the other ones, I mean, I think one thing that's interesting is they also are sticking to what they know, right? Yes, they are roll-ups, but they're not starting to buy businesses that don't really make sense with their operations. They tend to stick to what they know. That's right. And they've stuck to their vertical. Good point.

to what they know. That's right. And they've stuck to their vertical, good point. They've stuck to tucking in stuff they understand and that they can find some synergies. And they've been so patient. This has happened over multiple, multiple decades. And they've been meticulous about the operations. When you're buying these distressed, fragmented industries, if you're value buyers in like trucking or convenience stores, you're going to be buying a lot of junky operations sometimes. Mom and pop shops, same with the waste consolidators. I didn't include them because I'm not really sure where Waste Connections is from. I know GFL is mostly here. So yeah, nothing else to add. If you have any comments, I'm all here for it. No, I think that was a fun little one. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using

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So the next segment here, and I know you'll want to chime in a bit, so just let me know when you want to chime in. It's a question for Brian that came in. I reduced the question just to make it a bit shorter for the podcast, but I kept the essence of it. So I currently, as question starts off, I currently have about 60% of my portfolio managed by an advisor and 40% self-directed. My advisor has recently suggested to move a significant portion of my holdings from a high growth Fidelity Global Innovators Fund that heavily tracks the NASDAQ to a covered call ETF, fund that heavily tracks the Nasdaq to a covered call ETF, the Horizons Nasdaq 100. He says that it's much less volatile and still reaps a lot of the upside since the Nasdaq had huge gains in 2023 and may experience slower growth and or volatility this year. I don't fully understand what a covered

call ETF is. So I'll give my take. I'll explain what a covered call ETF we have in the past. None of this is investment advice, Brian. Yeah, no, exactly. Well done. I was going to say that, but you beat me to it. And obviously, this is just our opinion. Again, we don't know your full financial situation. We don't know how much, you know, what kind of investor you are, what your risk tolerance is. These are all things that hopefully your advisor, if he or she is a good advisor, they are well aware of. But it's a question, the covered call we do get relatively often because they tend to yield quite a bit. So anything you want to add before I explain the mechanics of that?

No, I just, I don't want to be critical of any financial advisor. And I know a lot of people come in with questions and we don't know the entire context of the advice given, but anytime you're told we got to rotate out of this because it's done too well, is some of the most idiotic statements I've ever heard. It truly is. If we were to just zoom out and every time Amazon or Apple hit an all-time high as you sold the stock, it's done too well, you would have missed out on life-changing wealth. I'm not saying NASDAQ's in for another 40% rip, but the constituents inside this company, inside this index are doing very well. They dominate our day-to-day. So that is what I call

trimming the flowers and watering the weeds, which is a recipe for underperformance, in my humble opinion. So that's my only comment so far. Okay, no, that's good. And that's fair. And I'll give my take towards the end here. I mostly agree with what you're saying, but I'll actually give some actual numbers to back that up. So I think it'll be really interesting. So first of all, what is a covered call ETF? If you're new to investing, you may have encountered these ETFs and a lot of newer investors get attracted by them because they tend to pay high single digits, even double digit yields. So a covered call ETF means that the fund managers sell call options against the stocks that

are held in that ETF. So a call option gives the right to the buyer of the option to purchase the stock at an agreed upon price for a set period of time. When a covered call is sold, the buyer pays a premium, which then goes to the seller. So one call option that's important to know as well gives the right to purchase 100 share. So there are contracts of 100 share. They're always sold in these lots of 100. Now I'll give an easy example to make sure that it's easier to understand. Just a second here.

I believe Brayden is playing with the page. That's making a little bit harder. Maybe not. Were you? Oh, man. I always forget. The classic move. Yeah, the classic move.

Is this episode 450, Simo? Yeah, 350. 350. That is 350. That's a good reminder. This Yeah, 350. 350. So that is 350. That's a good reminder. This is episode 350. I've done this 350 times,

you know, minus a few Dan appearances. And I still mess with the doc to Simone's frustration. And like, you know, dude, I applaud you for putting up with 350 episodes of that. It's all good. I, you know, dude, I applaud you for putting up with 350 episodes of that.

It's all good. I, you know, I hadn't started the example, so it doesn't break the train of thought. So it's all right. Now, the example, I'll try to simplify it as much as possible. It's not the real price. Keep that in mind. I tried to use just some easy numbers. So it's easier for people to wrap their head around it or rewind if

they want to re-listen what I'm saying and to that example. I'm also not going into things like time decay for example when it comes to options. Feel free to go on Investopedia if you want to understand what that is. I'm really trying to keep it as a more basic level. So I have 100 shares of Microsoft, which are currently trading at $100 each. I decided to sell one call option because it's 100 shares, so it's a lot of 100, to Braden. The call option gives the right to Braden to buy $100 shares, my shares of Microsoft at a price of $110 for the next six months. Now the reason why it's a bit higher typically that's why like options will be sold so the strike price so the $110

will typically be higher than what it's trading at. Now for that right Brayden pays me a premium of $2 for each share, so $200 since the contract is a $100 share. If the price of Microsoft stays below $110, then Brayden won't exercise the option and I'll pocket the $200 and still have my Microsoft shares. That's because if it stays below $110, why would he exercise that? Because he can get them at a cheaper price on the open market. It's that premium, that $2 premium per share that generates the income. And this is the best potential outcome that I just said, if you're doing a covered called strategy, is you're essentially looking at either a flat market or a bear market. So that's typically, you know, the best outcomes because you're still getting that premium. So it helps your return. On the other hand, say Microsoft

rips and the price is 150. So I ended up making $12 a share. That's because the initial initially when I sold the call option, the shares were $100. And then the option strike price was $110. the shares were $100 and then the option strike price was $110. So that means I sold my shares to Braden for $110 and made $10 profit plus that $2 premium for a total of $12 per share. The issue here is I capped my upside is because if I just held on to the shares and did nothing, did not sell options, nothing like that. I would have made $50 profit per share during that time period or $38 more per share compared to the call option. So when it's a covered call ETF, it's the same logic. It's just done on, you know, hundreds of stocks that are essentially the underlying component of the ETF. And the biggest issue with covered calls is, like I said, you're capping your upside, but you're reducing your

downside as well. Historically, and I will go over these numbers, it has not produced good returns compared to their non-covered calls counterparts. So I decided to choose a different ETF, but it's very similar to what Brian was referencing just because the one that he was referencing just started being traded in May. So I looked at the QQQ, which is the NASDAQ 100 ETF. I think it's 20%, 0.2% management expense ratio, so quite low. And then the other one I compared it to is the QYLD, which is the covered call version. So the returns I'm talking about, they are the total returns. It includes the distribution or dividends. It does factor in those premiums that I was talking about that generate income with this fund.

Anything else you want to add before I go over the numbers? No, you've covered the basis here, right? Anything else you want to add before I go over the numbers? No, you've covered the basis here, right? It's in a basket of ETFs. It's just them doing this on tons of stocks, basically. Exactly. Now, if you're looking back at 10 years, QQQ has had annual returns of 18.43%. Clearly, tech and big tech in particular has done extremely well over the last decade.

So if you had a $10,000 investment, you'd be worth a bit more than $54,000. During that same period, the covered call version, QILD, would have returned 7.43% annually. And a $10,000 investment would be worth $20,400. So now you're seeing that clearly there's some big differences in return. Now, to be fair, I tried to look, I tried to really find periods where the covered call was actually performing better. Just to be fair, looking at different time periods. So I decided to do a one year return from May 2019 to May 2020. The reason I chose that is because, of course, we had the kind of market crash that happened in March of 2020 during that time period.

So I figured it's probably going to help out the covered cowl ETF. Not really. So QQQ returned 36.24% and QYLD returned 5.66%. So what happened here is that the returns during that time period for QQQ, so the lead up to the correction, the returns were so much greater than QYLD that even the fact that QYLD would get those premiums and even during the downturn, QILD would get those premiums. And even during the downturn, it really didn't help the returns. And obviously, by May of 2020, we were already back in a bull market, I think at that point. Now, if we drill down even more, and try to really capture the worst of the pandemic through a six month period. So I decided to do September 23, 2019 to March 23rd, 2020. March 23rd was actually when the S&P 500 and Nasdaq bottom at the onset of the pandemic. So during that time period, QQQ returned a negative

10% and QILD returned a negative 16.5%. So QQQ still outperforming during the shorter time period and me even trying to find a way to get QILD to outperform. Now, I narrowed down even further, and this is the last one here. Let's look at February 23rd to March 2020, a one-month basis, and I don't think it got really much worse than that. So QQQ was down 23.5% and QYLD was down 20.9%. So it did outperform in that one month period, but it's the only instance in the last 10 years. But very, not by a wide margin. Like it didn't save you from a huge drawdown. You still had a few, you still had a massive drawdown. Yeah, exactly. And these are total returns.

Now, maybe in the last 10 years, there were some little time periods that QILD ended up doing better aside from the one that I just found. I mean, I was trying to look for the most obvious one, but typically people will also hold funds for more than a month period. So that's the other thing to consider here, that it's not super realistic to think about it this way. Now, to be fair to your advisor, there's definitely a case to be made that maybe the S&P 500 and NASDAQ are currently highly valued. I mean, we talked about it at the beginning of the episode. It's not impossible that if the Nasdaq goes sideways or enters a bear market for an extended period of time, that the covered call ETF will outperform. And in theory, that's when it would outperform is you have an extended

period of time where the market is essentially flat or in a bear market. We just haven't seen that in the past 10 years. So in theory, it could happen. I have no way of knowing what the future hold neither does Braden, maybe it will outperform better. I mean, all we can do is look at back and testing this data. And that's what I did. The historical data is clear, though, and it hasn't performed well versus the QQQ. Now a couple of things I'll finish on here. So in terms of you, these are good question for anyone looking to invest, looking to kind of look under investment from a critical standpoint. Just these are questions to ask yourself. Are you looking to maximize your return over a long

period of time, 10 plus years? Maybe you're closer to retirement. You have you'll need the funds in a few years. So these are all different things you have to factor in and may influence the type of investment you'll be in are you okay with volatility would you panic sell in the case of 20 30 40 drawdown maybe having that extra income even though it won't out perform longer term from a psychological basics maybe it will prevent you from doing some mistakes in selling at the bottom, for example. Are you looking to draw income on your investments? And even then, I mean, you can argue that you can just trim your position and get some income from that. So those are questions that you need to ask yourself. Brayden and I can't answer that because

we have a risk tolerance. We are young. We still have a lot of time. Well, Brayden's young. I'm starting to be middle aged here, but you're a young lad. I'm a young lad. Yeah. But I mean, the reason I think it's important, these are all like important questions to ask yourself. I think also for people just looking at investing in only dividend stocks, I think the only case that I think the strategy is worthwhile is from a psychological benefit because a lot of the time these strategies tend to underperform the index. And I'll just finish on fees. So make sure you look at the fees for each of the funds because that will be an important part of maximizing your returns. amazing your returns. Covered call ETFs will generally be higher fees because it requires some active management from the fund managers for the covered call strategy. There's also more

trading involved because they're buying, they're selling options, sorry. So there is some more fees involved. For example, just going on memory, the QQQ, I think it's 20 basis points, so 0.2%. And the QILD, I think it's three times that, so 0.6%. So keep that in mind because these are all different factors to consider. If you'd like this strategy, personally, it's not one for me. But again, I know a lot of people, we get that question quite often. So I thought it would be good to bring him back at the forefront here. There has been a gigantic rise in products that these companies are spinning up to sell to investors. They are investment products because for the most part, all of the basic indices have competed down to zero on fees. You get these

broad-based S&P 500 funds for five basis points, like 0.05%. And then they look out of the universe on things that they can create and generate fees from. That is their business. These types of instruments, yes, they can provide income. Do they provide a sound investment strategy? No, not really. I think most of this stuff, I feel more and more like Charlie Munger, where it's just gone. We are wasting smart people's talent in the financial industry, making this crap. Because it is, it's crap. And that's, it just is. It's the truth. It's a lot of crap. And we're making more of it every single day with these fund providers. Yes, you can get income, but let's just step back logically for a second. The same way that it is a silly mistake to only buy high

yield stocks, even if you're looking for income, put that out of the way. Even if you're looking to sit on a beach and have a bunch of dividend companies pay you cash. Nothing wrong with dividends. Something wrong with that strategy. And the main reason for that is treating a company like an instrument that pays you a yield. That is its sole purpose. I buy this ticker. It pays me income.

That is a company you are buying equity in. It is not some imaginary stock ticker you buy on your discount brokerage and they pay you. Although it does feel like that, that is a portion of the profits of that business operation is giving to investors. And the reason they're giving that money to investors in the form of a dividend is because they don't have a way to spend it all and get a return inside of their business. So when you get really, really high yielding stocks, really high yielding companies, that is a signal that the company has reached maturity. And that is a signal that the management team is letting investors know, we don't have a good enough way to invest this within our company that we think

it's better to sit on your balance sheet instead of ours. That's what a dividend is. And so a lot of companies like think of Visa, for instance, they produce more cash than they can possibly know what to do with. Same with Apple. And so they pay a conservative and growing dividend as their business grows. But they make sure since they're able to achieve 20 plus percent return on invested capital of dry powder that investors give them and that the cash they generate, of dry powder that investors give them and that the cash they generate is in their investors' best interest to deploy it and be a steward of it at a higher rate of return than you can. That's why you own the equity, right? Let's not outsmart this stuff. It's just very basic. And these products are told to convince investors that there has to be something complicated here to earn income. If you want to own income, just buy a good business

that pay you dividends and hopefully the dividend is growing. I think all this stuff is crap. I've never owned any of it and I've never will. Yeah. And buybacks would be similar. So they're looking to return money to shareholder it's just doing it in a slightly different way instead of giving you cash they're giving you essentially a bigger share of the companies that's what they're that's what they're doing so that's why buyback yield one of the metrics we looked at in the last episode that's one that we mentioned because it is a good indicator of how they're returning shareholder or money back to shareholder when looking at buybacks and I mean when it comes to covered calls it just feels especially something

as you know as high upside as the Nasdaq I think that's a fair statement to say it just feels like you're really it's an asymmetric bet so there's the upside is way higher than the potential extra safety that you're getting with doing a covered call so it's costing you more in the long run that's a sense well i mean that's what the data tells us at least historically is you're capping your upside for a little bit of downside protection, but that downside protection is really not proportionate to the amount of upside it had. Investing is simple, but not easy. In essence, the idea is simple. The execution is difficult.

These types of products create complexity with a result that doesn't lead to success. Hey, do you want to pay more fees and have worse performance? It's not a proposition that I'm willing to go for. And you said that. And the other thing too, I think that to me would be a basic if your advisor is suggesting a new investment, they should be able to explain to you what that investment is. Yeah. Like that to me would be a basic. And, you know, it's I think it was a great question from Brian, but that would be the question I'd ask the advisor is why were you not able to explain this to me how a covered called etf is and if he or she is not able to explain that then there's some warning bells that go on

at least for me because you're recommending products that you don't even understand yourself yeah this is people yeah yeah like the finance world and I know because I'm in it. They're my customers at FinChat. I talk to them all day. I know how they operate. I know how they work. I know how they make money. They're incentivized over time to complicate things.

It's just built in the incentives and you, you can't sound smart if you just tell your customer to buy your Costco every month, you know, like just buy Costco every month and sail off into the sunset, like has been a way better take than buy complex, a way better take than buy complex high fee instruments. But that's too simple, right? And then how are you going to earn your fee if what you're saying is too simple, right? Like the incentives don't make sense, but we could go on and on about this. Yeah. I think we've gone on long enough. So let's do your next segment here. We've gone on long enough. So let's do your next segment here. 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

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That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb

or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. Oh, well, I got all riled up here from complexity and investing. And I'm going to stay on that same topic.

We record here on Tuesday afternoon, Simone and I. And this is Hot Take Tuesday, a new segment. Hot Take Tuesday. This is called Why Starter Positions Suck. I really read that. I was asked on a pretty big podcast. I was on a guest. It's not released yet, so I'll leave it at that. But when it's out, I'll link it. I was asked, do you use starter positions? And I realized on the spot when I was asked that I actually do have a hard opinion on the concept of startup positions. And because at first,

it seems like a harmless concept. A startup position is a term investors use for new companies in their portfolio for adding a small allocation as they continue to learn more about the business over time. I used to think that this is a good call, starter positions. Do you use the world of starter positions? I mean, I would say like, I'm not, I read your segment, so not in the way you really mentioned it. I mean, I'll usually have conviction in the company. I know where you're going for. I mean, I've been kind of, I think, in our New Year's resolution, right? That was one thing that I've kind of noticed that was something I wanted to remove from

my portfolio is that I had a tendency sometimes to start a position. I knew the company well, but then I'd get like hung up on the valuation and never add back to it again. And then it would remain like just a really small position in my portfolio. So that's what I'm trying to avoid. I know you're talking about slightly different, so I'll let you continue on that. Yeah, because you mentioned just a few words in there that was very different than my issue with starter positions, which is you knew the company really well already. Some investors, including professional money managers, will often cite that they are motivated and when they have skin in the game to continue to build conviction in the company once they already have a quote-unquote

starter position. Now, in theory, I'm on board for this idea. As you learn about the company, you gain confidence and conviction, and you increase your position size. I'm, in theory, totally good with that. That thought process is very instructive. And I think matching position sizing with conviction is actually a wonderful way to manage a portfolio. And it's how I run my own money is manage conviction with position sizing. I also believe that a small waiting for a new name is a totally rational and reasonable decision that you can add to over time. So in theory, started position, two thumbs up so far. However, with that out of the way, did you see that? What is with, Google Meets is doing this too. I just gave two thumbs up on the

thing. Oh, now there's fireworks. And then fireworks just happening incredible stuff so if if you're on join tci it'll be what is new year's eve right now with that out of the way here why starter positions are a trap it's a conceptual and behavioral bias that i see in starter positions one they can be and often are used as an excuse to enter a position that's not well understood, which is not what you were describing there. The hurdle rate or bar for X, this is I think what you might've been talking about though. The hurdle rate or bar for excellence in the portfolio is lowered since new positions could just fly in and out of there, right? Like, you know, the bar is lowered and shiny object syndrome and over-trading become prevalent. Next thing you know, you own 58 stocks. You have low conviction, low weighting. See what, if you ever see 58 stocks

in my portfolio, you smack me, you, you, you come to Toronto, you smack me over the head, you go into my brokerage, we sell everything, we buy low cost index ETF, you buy me a plane ticket with my money, don't worry, to a beach where I'm locked out of my brokerage forever. If that ever happens, you promise me you will do that that because I've seen this so many times and I think it can work for some, but that is a unwieldy proposition for a self-directed investor to own, understand, and be an equity shareholder in 58 individual companies. That is a gigantic undertaking. So now I've laid out what's theoretically right with starter positions and why I think that they're actually a trap

and how they're often used. I'm here to present a better way, Simone. I'm here to present a better way. Any comments so far on the three issues I've laid out with starter positions? Any comments so far on the three issues I've laid out with starter positions? No, I mean, for me, I think it would probably be the opposite where if my position is too small, I tend to lose interest in it. Yeah, that too. Yeah, it's just like it's not needle moving enough. And that's the reason why I want to just build larger positions in general. So for me, it's a bit of the opposite.

But again, yeah, usually when I've been guilty of doing kind of starter position, quote unquote, it's just because I found a decent entry point from evaluation perspective, from my point of view. And then valuation went up and I was like, OK, I should should have, you know, had that bigger starter position, whatever you want to call it. And that's what I'm focusing on. And that's what little kind of teaser for Join TCI for our next update. So started one position in particular that's already, you know, a decent size. So I'm trying to follow what I've been saying at the beginning of the year. Nice.

And so we can both agree that in theory, we like the idea of a starter position, but the actual problem is around the behavioral biases that come with that. Because a starter position is the idea of, I'll figure it out as I go. And Acree's focus fund lays out two types of positions they have in their portfolio. They have a core position. So you know what that means. A core position is high weighting, something you know really well. It's probably been in the portfolio for at this point, many, many years, continue to add to it. It's in that never sell category right now because the thesis is intact and the business is executing and you're happy as a clam as a shareholder.

So that's a core position. A workbench position, as Acri calls it, is I have full thesis in the business on day one of original purchase. I have no intention of selling it, but the current valuation or the current conviction or market forces may not make sense for further accumulation and increasing the weight. So it doesn't mean you haven't done the work on day one. It just means that, like for me, for ASML, like I bought the stock as like a workbench position and it like doubled in like the next six months. I'm like, okay, well now I don't think it's as attractive. I love the business, but I can't underwrite even close to the same IRRs over the next five years. And so now these two things might seem like semantics, but in practice,

I find that they're very different and they have a different hurdle for greatness. It's kind of like the punch card concept, right? You have 20 train tickets on your punch card and you don't want to waste them. And so you only swing when there are pitches coming across the plate of ideas that you've fully kind of fleshed out and fully thought of and have full conviction in them so this is uh this is my hot take tuesday on why starter positions in the way that they're used i think suck yeah no i mean i i think it's uh it's a valid point of view i mean i, I do understand some people that for them, it's an extra incentive to keep learning. Hopefully, you know, for those who do do this,

they have a decent understanding of the business before doing that starter position. I think that's probably the caveat I would put and then do a bit more kind of further digging. Yeah, but starting just, you know, not barely knowing anything about the company and then doing a startup position, I'm not sure that would be the way to go,

at least for me. Your last segment here, should we save it for next time? I'm so intrigued of what this is. Should we save it for next time? What do you think? Yeah, yeah, we can do it for next time. Okay, we'll keep both me and the listeners

on their toes for this one because I saw TikTok in here and that got me a little bit interested here. Yeah, no, it's more of a personal finance segment, but I think it'll be fine next week. Have you been sleuthing TikTok for personal finance tips or what? No, just I get entertained most of the time if I go there once in a while, but I have this like, you know, I don't have really a profile.

So it's just this basic like, you know, KYD75WX, like that's my username. Yeah. You're just a, what do they call that? A lurker. You know, when you're not- I'm a lurker. You're not a poster, you're a lurker.

Yeah, I'm a lurker. You know, when you're not a lurker, you're not a poster. You're a lurker. Yeah. Yeah. Yeah. Oh boy. I don't have the app on my phone because I'm full tinfoil hat conspiracy of. Oh, you think China's going to spy on you? Oh yeah. Big time.

Like I saw one YouTube video about it and I was like, I don't need to do any more research because what if this YouTube guy is right? I could find a conflicting opinion, but what if he's right? I don't even want to know. Full tinfoil hat. Hey, that's conspiracy theories. Sometimes they end up not to be conspiracies. So I'm'm not saying always but sometimes they're not so yeah where there's smoke there's fire as they say uh that's that's one thing i i tend to live by and it's like don't read everything you see on the internet don't read you know seeing is believing always double check and verify but where there's smoke there's usually fire or at least like a small like maybe fire or at least questions to be asked thanks for listening to the pod we appreciate you you can

support the show at joint tci.com you can support the show also by supporting our podcast advertisers that come on the show you know you, you hear me, hear Simone, you know, talking about our advertisers. We appreciate our advertisers. The reason we're able to do this still, 350 episodes in and have motivation to continue to provide awesome content. So go ahead and support our advertisers.

And if you've been listening to the show and think, hey, maybe I'd like one of the hosts to read an ad about my business, especially if it's based in Canada, the audience is what, like 95% Canadian, Simone? Roughly? A bit lower, 92, I would say. Okay. Yeah. So almost entirely Canadian. Yeah.

Like low 90s, 5% US and the rest of the world. If you have a Canadian brand or you work for a large Canadian company and you think, hey, this is a good audience to get our name out there or a good audience to get some conversions, you can go to our website and fill out a little form to reach us at thecanadianinvestorpodcast.com. We'll see you in a few days. Take care. Bye-bye.