The Canadian Investor - Top 10 Performing TSX Stocks This Year

Episode Date: June 17, 2024

In this episode of The Canadian Investor Podcast, we start by talking about the best performing stocks on the TSX and look at some common themes. We also explore why trying to beat the S&P 500 might not be the best strategy for every investor. We also discuss some comments from Bruce Flatt, CEO of Brookfield, that adopting a long-term perspective is crucial. Businesses should be valued over decades, not in the short term. This mindset helps investors stay focused on their goals rather than reacting to market fluctuations. We finish the episode by answering a listener question from jointci about what valuation ratios we use when valuing stocks. Ticker of stocks: CEU.TO, EDV.TO, CLS.TO, HBM.TO, TVK.TO, BBD-B.TO, ARTG.V, BDT.TO, IMG.TO, HRX.TO, SFTC.TO, SII.TO, NVEI.TO, ATZ.TO, DOL.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  Web player - The Canadian Real Estate Investor Sign up for Finchat.io for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. The Canadian Investor Podcast. Welcome into the show. My name is Brayden Dennis. As always, joined by the very handsome Simon Belanger. Just before we started recording, we talked about how much junk there is on the Toronto Venture Exchange.

It's just a general PSA. Do extra due diligence on the TSX Venture because there is a ton of garbage out there. So be careful. Yep. I would say, I don't know. I don't know the percentage, but it feels like most of the companies I end up looking up on the venture, it's always, it just, it looks good on the surface. And then you start digging like just a little bit, not even a lot. And there's some weird stuff happening.

There is. I mean, I think we were doing the math on it and the Constellation spinoffs are about 15% of the market cap of the TSX venture now. And then everything else I look at, I'm always thinking there is, when there's smoke, there's fire. There's a lot of junk here. On that same note, Simone, I'm going off notes here. Did you see that there's the new Texas stock exchange being proposed? Yeah, yeah, I saw that. The TXSE, which is way too close to the TSXE in my mind.

But hey, they clearly don't care about the Toronto Stock Exchange acronym when they're proposing the Texan Stock Exchange. Yeah, I mean, I think it's, I haven't read too much about it, but my understanding is they would probably have lower fees than the New York Stock Exchange and NASDAQ. And they would also be a bit more business friendly, because my understanding is the New York Stock Exchange and NASDAQ impose some additional requirements that are more philosophical on their end than actually, you know, actual requirements by law or by security exchanges. Yeah, you have this duopoly in the US for the most part if you want investors to actively participate in your listing. And when you have just two players in this extreme regulatory capture moat,

there isn't a lot of innovation that adds value. People start doing other projects that not necessarily might add value, and you have a lot of pricing power. They're phenomenal businesses, let's not kid ourselves. And I think over time, there becomes more and more appetite for a third player. Now, this is extremely hard to pull off. Yes, they've made a website. Yes, they say they're going to challenge the incumbents. Yes, they have even backing from BlackRock and Citadel, which have huge deep pockets and well connected in the capital market space. This is an uphill battle. There have been many entities that have tried to take on the two big players. And there's a reason that regulatory moat is really difficult to disrupt. Before we get into today's content, Simone, Blossom, the social app for investing in Canada, they're hosting an event Tuesday the 25th at 8 p.m. So people have time. People have time.

People have time. You have two weeks roughly. It is Tuesday the 25th at 8 p.m. in Toronto at the Stacked Market. You can buy tickets. They're very affordable by typing in on Google Blossom Event Toronto on Eventbrite. That's where you can buy a ticket. I will be there if you want to come say hello and meet me. I will be there on the 25th of June. All right, into the content, Simone. It is halfway through the year now, and I wanted to look at what's been working on the TSX in particular. What has been some surprising names?

And just get an idea of what the top 10 performing stocks on the TSX are. And I was a bit surprised by what I saw. You can see the list here as well. Anything that interesting pops out before I get into the list? Just gold. Just gold miners. I mean, I'm not surprised just seeing these names. I'm not surprised at all. I mean, half of them seem tied to gold or silver in some way or materials, metals and mining. And I mean, gold has been a bit on a tear since October, November of last year. gold miners and i'll say gold miners here but there's different things but gold miners are typically a leverage play on gold right because they have these kind of these higher expenses they're typically relatively fixed so what ends up happening is if the price of gold kind of goes up their profits really take off because the expenses stay relatively stable so that's why most people will say their leverage play on gold.

Then obviously a lot of them have debt unless you're looking at it like a Franco Nevada, which is a metal streamer, different business model. They are not leveraged, but all that to say, not surprised at all to see these names. Yeah. Gold is up around 300 USD an ounce on the year. Oh, on the year. Oh, on the year. Okay. On the year. Yeah.

I thought you were saying the price of gold. I'm like, they're short two grand there, but okay. Yeah. No, as of recording, I think 2315 USD per ounce. Gold has definitely been good this year. Still nothing earth shattering, but it's definitely been performing well. Now, I do want to caveat this. When you do this type of screen on the TSX, you end up with a lot of metals in mining, regardless of how commodities are, because of the boom bust nature of these businesses. So you'll get

some up way big that'll reach the top of my screen and some that are way down on the bottom of the screen, just due to the nature of the company. Now, of course, the underlying commodity helps. That's why you're seeing lots of gold and silver in this list. So without further delay, CES Energy Solutions, which is energy and equipment and services, it's up 100%. Endeavor Silver Corp, Celestica, Hud Bay Materials, TerraVest Industries, which I am a very happy shareholder of now, is up 71% on the year. Bombardier, maybe turnaround play. Artemis Gold, Bird Construction, which I highlighted on the podcast, China Gold International, IAM Gold. So that's the list.

If I remove pure play commodity names here on the list, you get CES Energy Solutions, Celestica, TerraVest, Bombardier, Bird, Haru DevTech Inc., which is an aerospace company, SoftChoice, Sprott, Nuvei. They got taken out, I think, did that go through? Private equity is going for them. Yeah. I don't think the, it's either on the verge of being completed or will be soon, or has already been, I'm not quite sure. Right. It's still publicly traded. It's basically just flatlined at that takeout price of around 44 bucks a share, but it was basically a premium of 50% takeout on the name when it was listed. So that makes sense. Aritzia has had a bit of a turnaround year, bounce back year,

and Dollarama continues to dominate up 34% year to date. So that's just an idea of what's been working on TSX, which stocks have been hot year to date, halfway through the year, reflecting back. Yeah, Sprott is interesting because Sprott is, they have a gold trust and that's the way I would go if I were to, if you don't want to hold the actual physical gold, but you want to hold it in your account, like as a TFSA or something like that. From what I've read, like Sprott is probably second to none in terms of that even better than GLD, because I think they really physically own everything. So it's interesting to see them there. They have more than that, but they tend to have a lot of

kind of trusts or ETFs that are focused on commodity plays. I think they also have a uranium one. So it's an interesting business model because they, you know, you have these big ETF providers and they've gone a bit more niche. And clearly, at least this year, it's working. And it's funny because it's probably in part due because of the rise in gold and silver and these commodities, because those are some of their more popular trusts. Yeah. This is an asset manager, right? Yes. Yeah, that's correct. Yeah. Niche ETFs. I mean, that's the name of the game, right? You're not going to be able to

compete on these broad-based low-cost index. Like when you compare Vanguard and BlackRock, just how are you going to get any fund flows unless you niche down and provide something different? So I think that they've realized that and doubled down on it. Yeah, exactly. And still like a kind of pretty small company at pretty much 1.1 billion market cap. I'm seeing one and a half.

Oh, I was looking at your sheet here on the dock. Oh, that's in USD. Oh, USD. Yeah, you got to toggle local and data. Can I not read anymore? You got to toggle currencies on the screener just to keep everything normalized when you screen across different geographies. Yeah. Just to keep everything normalized when you screen across different geographies.

No, I think that's a good overview just to look at what's doing well and whatnot, especially on the TSX. It's hard to avoid the US market sometimes because there's just so many companies that are there that clearly made the news. Like NVIDIA has been probably stealing all the headlines now for a better part of a year. So it's kind of nice what's happening in our own backyard. 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. It's questtrade.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.

So not so long ago, self-directed investors caught wind of the power of low-cost index investing. Once just a secret for the personal finance gurus is now common knowledge for Canadians, and we are better for it. When BMO ETFs reached out to work with the podcast, I honestly was not prepared for what I was about to see because the lineup of ETFs has everything I was looking for. Low fees, an incredibly robust suite, and truly something for every investor. And here we are with this iconic Canadian brand in the asset management world, while folks online are regularly discussing and buying ETF tickers from asset managers in the US. Let's just look at ZEQT, for example, the BMO All Equity ETF. One single ETF, you get globally diversified equities. So easy way for Canadians to get global stock exposure with one ticker. Keeps it simple,

yet incredibly low cost and effective. Very impressed with what BMO has built in their ETF business. And if you are an index investor and haven't checked out their listings, I highly recommend it. I bet you'll be as pleasantly surprised as I was that BMO, the Canadian bank, is delivering these amazing ETF products. Please check out the link in the description of today's episode for full disclaimers and more information. Speaking of the S&P 500, so I'm going to make the case that it might not be the best idea to use the S&P 500 as your benchmark, depending on what your goals are. So I'll caveat with that because we do talk about it a lot.

I personally try to use it more as my benchmark because my portfolio, I'm, you know, I'm still relatively young. I'm going to be 40 in a couple of years, but still, I think I have, you know, at least 20 years of investing in front of me, if not more. So I have a lot of time in front of me. So the way I see it is like it's an easy thing to compare myself against because it's an easy alternative to just buy the S&P 500. But again, I think it really depends what you're trying to achieve. And I did a poll on Twitter and it was just interesting what people were saying. And I was trying to play devil's advocate here. But before I get started, anything you want to comment on that? No, I mean, the S&P 500 is a benchmark that has that name, brand, and power. And this is the whole power of the index business,

whether it's S&P or MSCI or whatever benchmark you're using, the FTSE. Name, brand matters, but that doesn't mean it's the best. It just means that it's the most well-recognized. And well-recognized matters if you're trying to find common ground between performance and benchmarking between different managers or different options. So I think that what you're saying is going to make a lot of sense. for example, and say like, wow, you know, they return like, you know, 8% or 7% and look at the S&P 500, it was 15 or 20% last year, which I think is missing the mark. You're not comparing apples to apple, you're comparing apples to oranges, because pension plans have to have a pretty big

amount of their asset into fixed income. So it just doesn't make sense to try and compare them to the S&P 500 because that's never going to be their benchmark to try and get better returns. And don't get me wrong, I think I've been quite critical about pension plans on the podcast. And I think, you know, and we've had that talk, especially when it comes to private equity, even private credit that pension plans have been going into, that there could be some trouble brewing in those two kind of areas of investments. And it was the case was made, I guess, Wall Street, which is great at marketing, that it was the next best, greatest things. And now we're kind of seeing cracks happening there. Or, you know, maybe before I get on to that, maybe private equity getting a little bit desperate.

It's kind of weird. And this wasn't prepared. But the amount of P deals that are happening in Canada, there's been some pretty high profile ones. I'm thinking about Indigo is one that happened like two, three months ago. Nuve that we just talked about. I think we had, Dan was a holder of Parkland Corporation. They're being taken out private. I think there's talks, you were talking to me about- GFL.

GFL. It's pretty wild, especially when we talked about the IPO market last year. That was one of the things that EY mentioned is that PEs or private equity funds are struggling because the IPO market is not very favorable to these companies going back to the public market. In a lot of instances, there's not enough demand there. So they're missing out on exit strategy. And that's one of the big exit strategies is to IPO those companies later down the line. Yeah, you're seeing a lot of private equity activity assets in companies that raise too much money, are burning too much cash, right size the ship. Or you get some of these companies that are not loved by the public markets that are potentially

good businesses. There's a lot of fresh capital sitting on the sidelines for private equity to come take them out. And they're trend followers, this industry. And so these assets are getting snatched up in Canada, and it creates a bit of a frenzy. Yeah. And congrats, obviously, if you had some of those companies and you're sitting on nice gains here. But yeah, and there's a few reasons, of course, like the S&P 500.

If you're looking to have all equities and an easy way to diversify like it's simple and it's easy to buy like there's there's multiple ETFs that are like below 10 basis points in terms of fees whether you're looking at listed in Canada or the US you can have it hedge you can have them equal weighted like there's all different kinds of ways to invest very easily in the S&P 500 they usually have low fees, like I just mentioned, it gives you instant diversification. The total return since its inception have been around 10%. Obviously, it'll kind of vary depending on the time period you're looking at, but we can just say about 10% right now. And like I've said before, I mean, the S&P 500 for some investors just does not make sense.

So even if we forget about pension funds here, the first one is there are downsides. We talked about this recently when the ETFs that I went over. I mean, it's still quite concentrated for a diversified ETF. It's heavily weighted. As of April 30th, 2024, the top 10 holdings were 32% of the index. I'm going to go on a limb and say it's probably higher than that now just because Nvidia has been on a tear. There can be also some significant drawdowns if you're all in on equities and more specifically the S&P 500. And for some investor, beating the S&P 500 should not be the goal. And again, I'll give some examples here.

The first one that comes to mind is definitely if you're someone who's in the capital preservation stage. It could be that you're close to retirement. It could be that maybe you had a large inheritance that kind of sets you up for life, right? kind of sets you up for life, right? Some people have a large windfall of money where, you know, they probably their main goal is to have decent returns, but, you know, also avoid significant drawdowns because they're almost all set. So I understand a lot of people listening to this podcast won't be in this phase. They'll be in the capital accumulation phase. But when in your capital preservation modes, it means you have sufficient asset to meet the goals that you've established.

And for most people, like I said, it will be retirement. And let's take the example of retirement. Say you're a year or two from retiring, but you're in this situation where you have more than enough capital to be able to retire comfortably until your time is up with life. Because obviously, we all have an expiration date. If you don't, let us know. I'd like to live forever. So, you know, if you have a way to live forever. I'm going to be in a frozen chamber like Dr. Evil. Yeah, exactly. And obviously, this is not retirement advice or investment advice. I'm just going to say here what I would probably look at doing if I was just a couple of years

away from retirement. So my number one goal is to ensure that I can comfortably live without having to worry about equity markets crashing and impacting my retirement. So how can I achieve that? Well, being 100% in equities, I think would be pretty risky in retirement. That's because no matter what kind of equities you own, if there's a broad based market correction or crash, you will not be spared. And you know, even if you have dividend stocks, the dividends can be cut or stop altogether and dividend stocks can still go down with a big market drawdown. And if you have a long time horizon and don't need to draw on the funds for retirement,

it is definitely a different story. But when you retire, for most people, they won't have the luxury. They'll need those investments to fund their retirement. So that's why my goal in this kind of situation would be to maximize my returns while lowering volatility. And we've talked before why volatility should not equal risk. Risk is really the risk of losing capital, right? But when you're retiring, that volatility can translate into the risk because if you're forced to draw down when your portfolio is down, then you have a big chance of losing money here. I see you nodding, so I'll let you chime in here. That's really well said. Volatility is not risk. Capital, loss of capital is risk. However, volatility equals loss of capital if you are a forced withdrawer of

said pool of capital. That's the caveat, right? For someone like you or I, volatility not equal sign risk because volatility equal sign opportunity when we're not forced liquidators of equities. If you are a forced liquidator of equities in your drawdown plan for your retirement, that's when large market drawdowns are risky. And that's kind of 101 in portfolio allocation is matching the allocation to your current plan. Exactly. And if your current plan is drawdowns, then it needs to be taken into account. Yeah, the worst thing that can happen in investing, and I'll even say if you own your home,

right? I'm not going to say that's investing, but just for the sake of this argument is being a for-seller. You can be fortunate and be a for seller in an up market. But if you're a for seller, you just you can't control right that. So if you're forced to sell, whether markets are ups or down, you're gonna have to sell. And that's a situation that especially in retirement, you definitely want to avoid or at least hedge against it. At the very least to minimize the risk that you'll have to force sell when the markets are not doing well or your holdings are not doing well so if i were to retire a couple years away i'd still have some equities i think it's a mistake personally to

you know get rid of all your equities you just have to balance appropriately and then i'd have some short-term treasury bills my preference as everyone knows is US treasury bills but again it could be Canadian government treasury bills another strategy here that I know a lot of people listen to this podcast adhere to is a ladder GIC strategy or fixed maturity bonds would also be an option although I would stay away from bond funds as those have interest rate risks. So you have to keep that in mind. Individual bonds here I think are better because you can actually hold them to maturity. And as long as you ladder it correctly, you won't need to sell them at a discount if there's some interest rate variation. The idea behind this is that I would want to have those available funds to essentially fund my expenses for a rolling five-year period. That's definitely

probably on the more conservative side, but the idea is you want to be able to have something that's relatively safe that you can kind of go and dip in and fund your retirement and you don't need to go into the equities portion and you can be a bit more strategic when you decide to trim those equities to fund your retirement and not avoid that kind of forced selling like I just mentioned. Personally, I would have some gold exposure. I would likely have some real estate exposure as well. Bitcoin could be a consideration if it becomes less volatile over time. Keenly aware that the volatility right now and, you know, sits in deception is quite high. So it would be very difficult to manage in a retirement portfolio,

but you can still navigate that with just a smaller allocation if you're comfortable with the risk. Obviously, with this type of portfolio, I think it would be unreasonable to expect to beat the S&P 500 or at least have it as your benchmark because it's a completely different set of assets. And again, you have different goals, right? If the S&P 500 in your benchmark, I hope that you're holding most equities because that's the benchmark that makes sense. But in this situation that I explained, it's not what you're holding or that's not what I would be holding in this situation. So it would be unreasonable to use the S&P 500 as a benchmark. I haven't done any research on what kind of benchmark, but I know there are some indices out there that will track different kind of assets. So something like that would probably

make a bit more sense. And let's not kid ourselves and let's not forget, let's not have a short memory. The market is essentially here at all-time highs. In 2002, when the tech bubble burst in 2000 to its lowest point, 2002, investors lost a significant amount of money, over half of the index. In 2008, due to the trough of 2009, you lost more than half of your money holding the index. In 2020, you lost about 32%, I think, what it was, peak to trough, drawdown on that money. In 2018, you had a big drawdown of around 18, nearly 20% that people forget about. This is normal. This is what you sign up for.

And if you haven't experienced large market drawdowns, don't be surprised when they happen because history tells us that it's the only thing that is normal for them to happen. If you zoom out over a long period of time, the constituents of the said index, in this case, the S&P 500, can have continued to compound wealth over time. And the selection process has worked and they've bought more of what's worked and less of what hasn't in overtime. And that strategy has worked extremely well over a long period of time. And investors have compounded their money at a very satisfactory turnover that time. But let's not forget, there have been massive, massive drawdowns on what would be considered an index of largely

blue chip dominant companies in the US. And so it's important to study history so that you're ready in the future and that it is not a shocker that these things can happen and they can draw down for a long time and take a long time to recover. It is not normal in 2020 when you lost 30% of the index and have an all-time high nine months later. That is not the norm. That is kind of an outlier in statistics when it comes to the performance of the S&P over a long period of time. So I think that that's really important to remember. Yeah. And I think just to build on that, I think it's important for people, especially those who started investing mid-2020 or later, there hasn't been any significant market drawdowns. There's been

some small ones here and there, but nothing prolonged. Even if you go back to 2008, 2009, like it's easy to say that you'll react well and you'll just, you know, continue investing, you won't panic. But I think it's worth for people who haven't gone through that to just reflect on the possibility of that happening, because it will likely happen at some point in time. It's possible that we will have a year or two where the market goes sideways or trends down. You know, even March 2020, it kind of rebounded pretty quickly, right? So it probably avoided a lot of people panicking and just kind of, you know, you blinked an eye and basically markets were back where they were at.

But I think it's just a good reminder for people to just go through that thought process, because if you think markets are always going, you know, up in the right, you may end up having kind of a reality check when that's not the case. And you can look at charts all you want. But I think it's good to go through that exercise and just kind of be honest with yourself and just prepare yourself at the very least of that potentially happening in the future, because it's not, you know, it's not necessarily a fun experience. I mean, I know myself myself i know i won't panic i mean i've seen drawdowns with bitcoin that were way more severe than that and i didn't panic and sell

so i know i know you're the same right but i know that not everyone is like that and you don't have to look very far on the web or talk to people you know that had equities and then there was a drawdown. I'm sure you can ask a few people that started investing prior to 2008 and you'll probably find a few people that kind of sold when the markets were going down and maybe missed out on gains for five, six, seven, eight years because they were snakebitten because of that. Yeah. Even if you just look at like SPY, the really well-known ETF, since its inception, you basically were flat slash lost money if you bought stocks in 2000 all the way through to recovery post great financial crisis in like the 2010s. That is a long 10 years. Those 10 years feel like a lifetime when you're down slash trading flat for a really long time from your initial purchase price. And that can be really, really painful. I remember talking to Chris Meyer and he said, it's not painful when stocks go, your portfolio goes down because if you have a lot of high conviction, you can continue to

dollar cost average into them. It's when you have something trading sideways for potentially a decade. And that has happened over history, multiple times. That's where it gets really kind of frustrating and or, you know, you questioning everything. And I'm going to add to that, think about it for that chart that you were showing. So for the SPY, you know, people who would have bought it when it started. So still early 2000, I think 2001, right around there. They see their investment going down 30, 40%, whatever it is. And during that same time period, if they're Americans, their neighbor bought a house or bought an investment property, and that just keeps going to the moon. Imagine how hard it is to not sell your investment in that situation when you see your neighbor

was crushing it with real estate. Clearly, he's going to, you know, a few years down the line, he's going to take a big hit with it. But nonetheless, it still shows that it may be very difficult or your other friend that just kept the money in his bank account getting three, four, five percent, no risk. It's very easy to feel stupid and think you're like, you know, you're not smart for buying the S&P 500. So I think it's important to just remember these things and try to go through that exercise as honestly as you can. Because there's probably some variance of that that will happen at some point in the future. I don't know when. Brayden doesn't know when.

But I'm pretty confident saying that something like that will happen. 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. BestTrade.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 is Airbnb dot ca forward slash host. So not so long ago, self-directed investors caught wind of the power of low-cost index investing. Once just a secret for the personal finance gurus is now common knowledge for Canadians, and we are better for it. When BMO ETFs reached out to work with the podcast, I honestly was not prepared for what I was about to see because the lineup of ETFs has everything I was looking for. Low fees, an incredibly robust suite, and truly something for every investor. And here we are with this iconic Canadian brand in the asset management world. Well, folks online are regularly discussing and buying ETF tickers from asset managers in the US. Let's just look at ZEQT, for example, the BMO All Equity ETF. One single ETF, you get globally

diversified equities. So easy way for Canadians to get global stock exposure with one ticker. Keeps it simple, yet incredibly low cost and effective. Very impressed with what BMO has built in their ETF business. And if you are an index investor and haven't checked out their listings, I highly recommend it. I bet you'll be as pleasantly surprised as I was that BMO, the Canadian bank, is delivering these amazing ETF products. Please check out the link in the description of today's episode for full disclaimers and more information. Let's switch gears to a passage I found from Bruce Flatt, who is the CEO of Brookfield. I think he's been the CEO since the year 2000. He's been at the company for

a long time. I love how the executives have such a tenured experience at Brookfield and a lot of skin in the game. Those are two things that I really like to look at for management that, especially if they are in the business of creating shareholder value via M&A and being an asset manager. So here's the passage. It's decently long, but there's a lot of interesting tidbits in here and we can break it down after. Quote, value investing was born when there was no internet, social media, or 24-hour broadcasting. At that time, value investing focused primarily on finding information about a company which was not known by others, enabling one to buy a fraction of a business cheaply in the stock market. Today, with instant information available to all investors on their

smartphone, the advantage one investor can have versus another is the ability to interpret that information better. What is dramatically different today is the volatility of the market, which is often caused by information that is totally irrelevant to the business. Investors should always remember that when they buy a stock, they are buying a portion of a business. Said inversely, a business shouldn't be valued minute by minute, rather it's value built over decades. Over time, if we do our jobs well, that value will continue to increase. If we each owned these assets privately in a partnership together, we would not really care about the stock market or what the news

reported. Over time, we would talk about how we were doing and the measure of the cash flows in our business, but we wouldn't even attempt to value the business on an hourly, daily, monthly, or an annual basis. We would make all of our decisions with the mindset that we are working for you, running our jointly private business. We always try to explain the real story behind the numbers for the longer term to enable you to understand the business like a private owner. End passage. Lots of gold here. First off, talking about changes in value investing from back in the day to now. Before looking at a value line or old Moody's manual, the data's out of date. It's not up to date. The news is not constantly being

reported on or being automated by computers. So potentially finding mispricing was easier. And then into point two around, look, public markets are valued on a mark-to-mark basis, on a second intraday basis. Now you have crypto markets being valued on a second-to-second basis, 24 hours a day, seven days a week. There's just so much noise going on. And he's basically saying, look, if we do our jobs right, none of that should be super relevant over time, especially if we're talking about decade periods here. So I just really like this passage from the shareholder letter in 2015 on Brookfield Asset Management's 2015 shareholder letter from Bruce Flatt. Yeah, no, I think it's a good passage. I mean, it's something you have to get comfortable

with as an investor, right? Either you don't look at the tickers and you delete all the apps from your phone and you just have it on your desktop and you kind of just look at the numbers, make your own assessment of the company. that and just having conviction and looking at the actual business, I think, is the other thing I get from that, because I think a lot of especially with mainstream media, if you look at CNBC, BNN, Bloomberg, it's a lot of it is just sensational, I would say, right? People just to get people trading, which and, you know, CNBC, I think BNN as well, to some extent, is they bring a lot of just fund managers pumping their positions. And I think if you want to find good value in the stock market, especially if you're picking stocks, a lot of it will be based on your analysis being a contrarian and investing in actual business and kind of just disregarding the noise.

Yeah, totally agreed. On FinChat, we have a feature. I don't know if you've ever messed around with this called business owner mode. You can toggle it on and you don't see any prices. Yeah, I tried it a while back. Yeah. Pretty good. It's kind of fun. I don't know how much people actually use it, but it's kind of fun, right? It's this idea of, okay, if you really are a long-term investor and you are going to try to think like a private owner and own a piece of this equity and hold it for a long period of time, price action over the last three months shouldn't matter. Price action today probably shouldn't matter. And so that's the whole idea. You can

toggle it on and then you don't see any prices. It blurs out the price chart. It blurs out the short-term movement. So it's kind of fun. No, I like it. Yeah. It's just a good exercise for people to do. DCI subscriber was, Simone Brain, which valuation ratios do you look at? And the answer, the easy answer here is it depends on the business. And one of the main reasons for that is accounting. And I think I've mentioned this many times on the podcast before. If you're a self-directed investor, we don't expect you to become a CPA, a professional accountant, a tax expert, be able to do complex accounting tricks and schemes and uncovering all kinds of stuff. But the basics are the math and the language of business. And so familiarizing yourself with just a base level of accounting really, really helps when looking at financial statements. And I don't mean that as to be

intimidating. I mean, just knowing, you know, kind of 101 will give you the superpower and language of business. And some examples of that is the metric of free cash flow and banks doesn't make sense in accounting. So using price to free cash flow on a bank is a completely useless fugazi fugazi number. Looking at a real estate investment trust PE ratio is next to useless because I got to add back depreciation. I got to back out proceeds of if they sold a building, adjust for CapEx. Next thing you know, you have adjusted funds from operation derived from net income. Now we got something really useful, priced adjusted funds from operation. Accounting details matter here.

And I know it's boring and I know it's not particularly sexy. The good thing is, is a lot of these platforms now will do all that kind of backing out accounting for you. now we'll do all that kind of backing out accounting for you. But it's important to kind of have some base level understanding of, I saw a post on Twitter that was comparing all the banks on a free cash flow metric. First of all, how did they come up with the number? First of all, and two, that just doesn't make any sense. So it depends, quote unquote, is neither a very satisfying or particularly helpful answer, even though it is the real answer. So here is my little field guide for some go-to metrics and few select types of companies.

This is not an exhaustive list, but rather a list of go-tos, and you can probably pile on with some as well, of where my brain instantly goes. Valuation ratios are sometimes referred to as multiples. It's the same thing. I interchange this all the time. I'll say a valuation multiple, valuation ratio, same thing. My default for screening and comparing companies broadly across the market of stuff at least I look at, which does not include banks, is enterprise value to EBIT. EBIT can sometimes also be referred to as operating income, but that metric basically is enterprise value. So the market cap plus the debt, subtract the cash. So that's a very holistic figure of looking at what the business is worth today on the public market, divided by normal EBIT. And what that metric is, is it's looking

at more normalized operations of the business. So earnings before interest and taxes. And we break out on FinChat too, it's just like EBIT from normal operating operations, which is super helpful if you're screening across a lot of different metrics that will remove a lot of weird nuances in there. And so now I get a pretty clear picture across a lot of different industries, enterprise value divided by EBIT. All right. High growth, maybe not profitable businesses. I like enterprise value to sales. It helps me kind of normalize different things. Some people also like price to gross profit for these types of companies. I think that that's fine as well. If I'm feeling a little bit spicier and I feel like doing a little bit more work, enterprise value to annual recurring revenue, if it's a software company, is even better. That's how most private transactions are valued in software today,

is looking at enterprise value to annual recurring revenue, aka ARR. Number three, more mature companies. I will look at price to next year's cash flow, free cash flow, or a price to forward EV to EBITDA. That's also good too. And then REITs, I mentioned before, price to adjusted funds from operation. You get where I'm going with this, with this field guide, is coming up with a few things that I'm looking at quickly to get a quick idea of where the business is trading at today for different types of companies. Not necessarily different industries, but different types of companies. I'm not going to value a high growth, not profitable startup versus the same as how I'm

going to value Coca-Cola. Like they're just at such different levels of maturation. Yeah, yeah, I think that's a great point. And I would say on top of that, when for people are starting to learn is just be curious. So when you look at things and if something doesn't make sense, I mean, I know I was there and sometimes I'm still there depending on what I'm looking at is just do your research. I mean, now with LLMs like Chad GPT, for example, like I just for fun,

while you were talking about AFFO, I'm like, oh, like I asked Chad GPT, like what is AFFO? Why is AFFO good for reads? And it gave me a really clear, easy, pretty easy to understand with an example as to why it's a good metric to use for REITs. Obviously, you have to make sure that the information is accurate. So I would always recommend that people double check with another source like an Investopedia or something like that. But if you're curious and you see something that you don't understand, it could just be like basic stuff. You're like, OK, like I'm not quite sure what EBIT is or EBIT is, you know, just type it in, just do a bit of research. And if you're curious that way, I find that's that's how you learn the best. So we can we can talk about it.

You know, you and I, we can say we'll use the different type of metrics depending on the type of companies, but there are a lot of good tools out there that you can use, that you can easily get access to. And as long as you have a little bit of curiosity, just ask the question. I mean, it's something that is very useful for people. Yeah. I just typed into the Fincheck copilot, why should I use AFFO? It explains why it's useful for real estate investment trusts. This is more accurate measure of cashflow, better indicator of dividends, sustainability, and safety, a comparison across different real estate investment trusts, important for making decisions around valuation, and to provide more, give me a certain company and I'll give you

the AFFO number at the end. It's like, okay, got it. Pretty easy. This is back to the roundabout way of what Bruce Flatt was saying is like, there are pros and cons for information being so available. It's like the cons are obviously people can be led to overtrade. They get an alert on their phone, stocks up 5%, a stock's down 5%, instantly sets off a emotion in your brain, especially if it's on the downside, like losing money feels a lot worse than making it. It's like studied by psychology that's been proven time and time again. So there's that downside. But then the upside is like, if you are curious, like Simone mentioned, you have like a superpower right now. Like it's never really been easier or better

in my mind to be self-directed investor. Yeah. Yeah. It's just having the discipline on one hand and the curiosity. I mean, I think most night I end up like, you know, I'm reading things and there's like, you know, there might be an article or paper that, you know, I understand the argument and the whole thing about the paper, but maybe there's going to be a couple of concepts I'm not a hundred percent sure on. So I will use chat GPT or Google it. And I will look it up and understand what it means. And maybe it's our personality type, but I enjoy kind of finding stuff I'm not 100% sure and just keep learning. I don't know, that's what kind of drives me, I just want to learn about new things. And it's, I mean, if you're you want to be a good investor,

and you want to learn about it, be self directed, I think you just have to embrace that, I mean, if you're, you want to be a good investor and you want to learn about it, be self-directed. I think you just have to embrace that. You know, it's not going to come overnight. If you're always curious and you do search it, you're going to learn a whole lot. And you're going to probably remember it a whole lot more than even like when we talk about it ourselves, right? Because you're reading it. I know for me, like whenever I read something, I remember it a whole lot more. What was your school memorization i know for me like whenever i read something i remember it a whole lot more what was your school memorization study hack for me it was the classic just write it out

yeah yeah like biology biology and like uh grade second art which would be like um grade nine i think on the quebec side you had all these like, you know, terms you had to remember. It wasn't like, it was basically a memorization test. Like you just had to know the terms. I remember, I think I just got to know the mitochondria. Yeah, I think I remember like two, three hours I spent for that test. I did exactly that. I would like write the term like 10 times and then move on to the next one 10 times.

And yeah, I would remember. I remember first year university because I'm a math guy and biology was just straight up memorization. And we had this first year course. I think I was in like third year. And they made us take this first year biology course that was all with the science students for my engineering degree. And I'm busy with like fluid dynamics, you know, static mechanics, computer engineering, like electrical engineering stuff. That's super difficult. And I really don't even know how I passed any of it, but the class that I literally almost flunked and got like a 37 on the midterm was this birdie easy first year biology course because i'm like i can't i'm not just gonna sit here and memorize all this crap like what like this is this is where i hate school this is where i hate the current form of education

for for for young people and it just doesn't work for everybody no no everyone a lot of people have different ways of learning so that's totally understandable but yeah that's the one that comes to mind the most because for me math always came pretty easy because there's logic behind it but memorization like it's just just got to learn it you just gotta get into your head there's not really logic behind it and i don't think it worked well long term because every time i go to the doctor or physio or something they'll be like they'll say this specific term i'm like so you're saying my leg okay okay yeah yeah let's let's dumb it down for the people who cheated in first year biology thanks for listening to the pod, guys. We appreciate you very much. So you can see

our beautiful faces for radio on join tci.com. Simone posts the video version of this podcast on there as well as our monthly portfolio updates. You can dive into myself, Dan Kent, Simone's portfolio every single month. And if you haven't already bought a ticket for the Blossom event, and if you haven't already bought a ticket for the Blossom event, I'll be there in person. It is on Tuesday, June 25th at the Stacked Market in Toronto. You can buy a ticket by searching Blossom Investor Social Eventbrite. If you type in those words into Google, you will find the event. Bunch of self-directed investors. We're going to do a little conference that night. I think I'm on one of the panels. It's so funny. I get invited to like panels and discussions.

I'd say more and more over the years through the podcast and the chat and whatever else, right? They just assume I am the AI guy now when there's so much to this broad field. It's like, I don't know everything about AI. It's like, I mean, it's really funny. We get it oftentimes to our people will ask us question.

It's like, what do you think about this company? It's like, I'm not a human repository of all the publicly listed companies. Like, I mean, I've heard of it or something like that but that is one thing that i found like comes up a lot is just people assume that like we know every single company out there there's a lot of companies that are publicly

listed even just in canada some some micro cap in western europe like i'm gonna have to get back to you on that one that's gonna uh there's i think there's 65 000 global public active public listings today so there's a lot to know yeah there's a lot to yeah that's why you should get finch out yeah dude i i really do think though screening is such a good way to like look at new ideas and understand like a little bit what they were. So I made this post on Twitter. I don't know if you saw this, but I wrote, would there be interest if we AI generated

the old Moody's manuals? So you can just kind of like grab a book while you're on the train and read through the descriptions of a bunch of companies you've never heard of in like real paper form and yeah of course the data will be outdated but maybe updated every quarter every year or something and i was shocked at how much appetite there is just for people to get some sort of idea generation mechanism. And I understand that. Yeah.

That's why I made that post on Twitter about like, you know, I gave people some parameters and I'm like, give me a description of the company, not just the ticker, because I will skip over your tweet. Give me the description, like a short description, elevator pitch of the company, along with the stuff I asked

and I'll have a look because then I feel like I'm not kind of wasting my time and just taking a ticker and then I look at it. I'm like, okay, I don't like this company at all. Yeah. Next. Yeah. Thanks for listening. We'll see you in a few days, folks. Take care. Bye-bye. The Canadian Investor Podcast should not be construed as investment or financial advice. The hosts and guests featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.