The Canadian Investor - What it Takes to Get Added to the S&P 500

Episode Date: December 4, 2023

In this episode, Braden starts by going over the criteria it takes for companies to be added to the S&P 500 and why investing in an ETF that tracks the index is one of the best trend following strategies. We then talk about owning bond ETFs vs. individual bonds and why Bitcoin has had such good returns so far this year. Tickers of stocks discussed: XCB.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 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 the charming Simon Belanger. Two important things here, okay? First, we are now into December, which means we just rolled into a new month,

which means the portfolio updates are posted from Simone and I's real money portfolios on join tci.com. That is the Patreon to support the show, see our monthly portfolios and see this podcast in video. And number two, you are wearing a bright Christmas red today, which means you're ready to go. Not really, it's orange. Dude, that is so red. People can judge on Join TCI. It's definitely orange. Yeah, yeah. Dude, on video, that looks as red as the Canadian Investor Podcast red behind you in your studio there. I think you might be a little colorblind, buddy. Either I'm colorblind or the video is throwing me off because it looks like hot Ferrari red. Not even like a bold read, like hot Ferrari.

No, that's fair. That's fair. We got a brilliant episode today. I'm going to talk about how the S&P 500, known as a very passive instrument, is a pretty active strategy in a way, and actually a bit of a trend following strategy, maybe the best of all time. You're going to talk about owning bonds versus bond funds. I'm going to talk about the wealth transferring machine. Make sure you stay tuned for that. And then we're going to round it out with a particular asset class or particular, well, I don't even know what to call it without giving it away. Something that has been ripping. Is it up as more than double this year?

We don't want to give it away. People have got to listen, but it's more than doubled this year? Yeah, it has. Yeah. Okay. All right, good. Yeah, I'm just looking here. Oh, yeah, it's definitely more than doubled this year.

All right, let's get right into it, Simone. I have today's first segment, which is going to be about the S&P 500. Now, of course, people know what this is, but have you ever looked into the actual eligibility rules, how they do it, how the cult that is the committee process gets together and decides what it is? Have you ever dove into this? A little bit. I mean, it must've been at least a good year ago. So I feel like I'll learn a little bit because I remember some things, but it's pretty vague, I'll be honest. That's right. And I was the exact same up until a few hours ago when I was doing my notes. I knew the basis of a lot of this stuff, but I had to actually look through the docs and figure out

the exact legalese on what they define on their investment criteria. And so most folks know the S&P 500. If you're listening to this podcast, you probably know what it is. And it's the most popular measure of the stock market broadly. It is deemed the index measuring the value of the 500 largest stocks listed in the New York Stock Exchange and the NASDAQ. So a US-based index. But there's more nuance to this. Let's actually look at the index selection process, how it works, and why market cap criteria, while important, is not the only criteria required to be part of the S&P 500. And then I'm going to show you something that we can actually really learn from this.

And so we'll get to that. So there are five most important things. There are others, but there's five really important ones. So when considering it, the S&P 500 is a measure of large cap performance, not the entire market, global stocks, and certainly not the economy. Number two, they have to file annual reports with the SEC. Assets and revenue have to be in the US, I believe greater than 50%. Three, the company has to be profitable, both on a trailing four quarters and most recent quarter to be eligible to be added in. Four, shares have to meet certain liquidity and float requirements. And so that leads into number five, that over 50% of shares have to be traded publicly. So that's some things to consider. Now, once these things are met, it comes down

to market cap and an active strategy, technically. This is known as the most passive instruments in terms of just owning the index and carrying on, but there is a committee selection process that ultimately has final say on what goes in and out of the index. Today, there are actually 503 companies in the index as of October 31st of this year, so not a clean 500. So Simone, since the selection process, they have an ultimate say on what's introduced and removed. And the fact that the weighting is market cap weighted, we have effectively a trend following strategy. It increases the weight more of what's gone up and less of what's gone down. So more of what's worked and less of what's not. And here's why it's so effective. And here's why people are

so bad at beating this index. It goes exactly against human instinct at its core. This creates an important lesson. It doesn't sell what's gone up and buy what's gone down. It doesn't cut the flowers and water the weeds. In fact, it is the exact opposite. The old adage, cringe adage of buy low, sell high. Mathematically, that's a really ineffective investing strategy if you backtest the stock performance. And the S&P 500 teaches us that because winners tend to keep on winning and the strategy loads up more on winners averaging up over time. And when the stock market broadly investors sell off a stock, the index ruthlessly does as well, for better or for worse. And guess what? The results are amazing.

It works beautifully well, and it goes exactly against human psychology. Yeah. Yeah, I know. I think that's a good segment and just kind of putting into perspective what goes into the selection process. And I mean, I think the counterbalance to with the S&P 500 for people to keep in mind is because anything that's market cap weighted, if anything happens to those top names, whether it's positive or negative, you know, you're gonna feel it even more so. And we've seen this this year, right? It's what the Magnificent Seven or whatever they call it, that have been responsible for like a crazy amount of the returns when it comes to the S&P 500. But if you go back to 2001, I think when we had the big tech stock market correction,

I mean, you saw the opposite where the S&P 500 took a big, big hit and you can probably go back to the great financial crisis as well. So if those top names take a hit, you'll feel it in your portfolio if you're invested in that. So I think it's just important for people to know. Obviously, historically, longer term, it's performed extremely well. And like you said, it's very hard to match or even beat those returns, especially if you're charging fees as a fund manager on your own as an individual. It's definitely feasible as long as you're willing to put the work into it and probably have a tiny bit of luck, because I mean, there's always going to be a small element of luck in investing. You know, whether people want to admit it or not, I think it's just a reality. You want to minimize that as much as you can. But there's just certain things, right? If you invest in a great insurance company and there's a massive natural disaster and they have to pay out tons

of insurance policies, even if they've bought reinsurance. I mean, those are things that are kind of a little bit in the luck element. Yeah, there certainly is some of that. What I'll counterbalance it with is there is a lot of opportunity for those who want to beat the market, if you are patient enough and can have a longer time horizon and mentality than the market, which is exactly what I'm going to talk about in my segment after your next segment. I'm calling it the wealth transferring machine. And to give people an idea, this is basically the more patient you are, the more the stock market turns into a wealth transferring machine from the market into your pocket.

And so I firmly believe that in the short term, being the market, this is fool's game and flip a coin. But if you really bring it out along horizon and you're able to think longer term than a lot of those managers that have to answer to client calls in short termism, they have a much harder position than a lot of self-directed investors. Yeah. And I'm actually on the S&P 500 and I've not finished that book. And I talked about that with Dan as well on the last episode, but I'm listening to an audio book on private equity and kind of the illusion of private equity and how a lot of these institutions, pension funds, endowments, large institution that put a lot of their money in private equity, a lot of the time, it doesn't even match the returns

that you can get with not just the S&P 500, because typically pension funds and institutions, they'll use a benchmark that you will use 60% of the S&P 500 and then a 40% allocation to just bonds, a bond index fund. So that's how they'll measure the performance. But the vast majority of them, when you factor in the fees, don't even come close. And without going into too much detail, because I'm sure I'll make a segment or maybe a full episode on it, is private equity, the big challenge is it's very hard to value the assets. And surprise, surprise, these fund managers that will have private equity funds tend to be on the more generous side of the valuation when there is oftentimes a lack of transaction for comps versus the market that's traded on a second to second

basis. And you can know instantaneously the value of your investments if it's publicly traded, obviously, assuming there's sufficient liquidity. Yeah. As soon as you go into private, the world of marking the assets, markups, markdowns, it is an art more than science. And what is it? And whose line is it anyway? When they go, the points are made up and they don't matter. Yeah. I mean, that's basically what it is.

No, exactly. But anyways, not to make this about private equity, we'll do an episode on that. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's

customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your

home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. Now the segment you referred to, so owning bonds versus bond funds. So I think a lot of people are, you know, aware that they can just buy, you know, I referenced it, some aggregate bond ETFs. You can have bond ETFs that are, you know, U.S. Treasury specific, 7 to 10 years. You can have Canadian Treasuries. You can have a mix of Canadian corporate and Treasuries. There's all different kinds of bond ETFs.

And I'll talk about the difference between both. And obviously, I've been pretty vocal. I'm not the biggest fan of owning bonds. But I do realize that a lot of people will have at least a portion of their portfolio into bonds. And the reality is that debt markets dwarf the stock market. And I think that's important for people to remember is that as big as the stock market may seem, it's a small, very small compared to the bond market and the debt market in general. Now, in terms of diversification, well, first of all, actually, it's important to understand the risk here of owning individual bonds versus bond funds.

Most brokers will offer you the option to buy individual bonds, but you'll most likely have to call them. So you won't be able to do it on the online broker with just a ticker or anything like that. So most of them, you'll actually have to call in. And obviously, there's going to be fees associated with those purchases. Now, clearly, if you want to be diversified bond funds, that's one of the biggest advantages because just like an equity ETF, it will usually be very well diversified and for example XCB which is the iShares core Canadian corporate bond index ETF has more than a thousand different bond holdings in the portfolio so clearly you can just own that and you'll be pretty well diversified

from a bond perspective but what this means is that if any of the companies have to restructure its debt or go into bankruptcy, you most likely won't notice the impact. And same goes with a broad-based index ETF. If one of the companies goes bankrupt and your equity in this company goes to zero, well, you probably won't feel it because chances are unless it's an Apple or Microsoft, which I don't think is going to happen anytime soon. are unless it's an Apple or Microsoft, which I don't think is going to happen anytime soon. But, you know, if it's a smaller or mid cap company, you're probably not going to see any impact because you have that diversification. So that's definitely one of the biggest trend following strategy already kicked it out of the index or had it at such a low percentage that you don't feel it anyways. Yeah, exactly. And so it's definitely an advantage here for bond funds and individual bonds. If you invest in a bond of an individual company, that company,

if the company's in trouble and they have to restructure the debt, you're going to take a most likely pretty significant haircut on the value. Clearly, you'll have priority over certain other types of debt and obviously equity holders. But still, you know, when there's a restructuring, oftentimes you will not get the full value, the full underlying value of the bond. It's the same as investing in an individual company versus an ETF. There's a lot of concentration risk associated with having individual bonds. And obviously that applies to stock as well. The more stocks you have, the more diversified you'll be. But if you only have five individual companies, let's just say that they're not very well diversified companies, not like a Berkshire or anything like that,

you're going to be highly concentrated and at risk if any of those companies experiences some difficulties. Now, you could have more than just one individual bond. You could have several to diversify a bit more. But the reality is that investing in individual bonds will also require more time and effort and some research because just like you would do for a stock, you have to know the company pretty well and be pretty certain at least that the company will be able to repay the capital when the bonds come up. So anything you wanted to add? It's the same thing. The risk associated with individual bonds are correlated to the asset that it's associated with, whether it's a government-issued bond or if it's a company-issued corporate debt bond. If you're going to be comfortable owning the debt,

you should be comfortable understanding the business as well. And so this is just like having another equity position in your portfolio. You got to understand owning the company from a debt perspective if you would be comfortable owning from the equity perspective. Yeah, no, exactly. And one of the biggest differences between having a bond fund, and I say I refer to ETF because I know most people it's self-directed. But if some people have pension funds like me that are defined contribution, oftentimes you'll have at least a couple of options of bond funds. So keep that in mind. If I say ETF, it could also just there's going to be some similar offerings if you have a DC pension plan. So just there's going to be some similar offerings if you have a DC pension plan. Now, if you invest in bond funds, you have the potential upside and downside with your capital invested. And we've seen that we've seen that, you know, very clearly in the past two years with interest

rates go up because the value of the bond or the bond fund will actually be inverted to the interest rate. So if interest rates go up, the value of the bond fund would actually go down and vice versa. So that's just simply because any new investor will want the ETF to offer the same kind of yield that is currently available when company or government are issuing fresh bonds. So the bond fund will actually trade at that value to achieve that or very close to it. And the only way to have this happen when the coupon is constant and the coupon is the interest payment in dollars is the lower the value of the underlying asset. And for example, that's why the

dividend yield of a stock goes up when the stock price goes down. So that's the same thing for stocks as well. If the stock price does go down and they have a dividend, it remains unchanged, the dividend yield will go up. So that's why XCB.TO is down 12% over the last two years. However, the other way around is also true, like I said. And if rates do start going up in the next year or two, you'll see the value of existing bond funds go up. What's also important to factor in is the longer the duration of the underlying bond, the more they will be impacted by changes in interest rate. And this is obviously this isn't a great outcome for those who are using bond ETF to

protect their capital if it goes down in value. And if they end up needing cash during a rate hiking cycle like we've seen right now, and they have to go and dip in this bond fund, it's not going to be great because they'll most likely be taking a loss. And typically people want to be invested in fixed income or bonds because they want to preserve the capital. So that's something you have to keep in mind because these bond funds are traded and the value will fluctuate a lot and they don't have the same option of just holding the bonds to maturity because there is a market for the ETF and the market will price it according

to what the market believes it's worth with the current interest rates. That's good. Nothing to add there. So now for individual bonds, when you buy individual bonds, they'll, you know, people will usually do until maturity. You can, however, sell them before maturity, but if you do so, it will be at the market price similar to the bond funds. But that is quite, from what I've read, I've never done it myself, but it's not that easy and it's not a super liquid market compared to what you can see with stocks, individual stocks, or obviously the ETF, whether it's stock ETF or bond ETF. The advantage here is that you can hold them to maturity, which you cannot do for the bond

fund since it's hundreds of thousands of issuances. By holding a bond to maturity, you actually limit the interest rate risk. That's because the value of the principal will be paid back when it matures. And the thing with the bond fund too, is because you have a thousand of different bonds, is they're constantly adding more bonds to it. So there's always going to be that very high fluctuation of the market value of the bond fund, whereas you have the option to just hold them to maturity here. And that's why a lot of bond investor will do a bond laddering strategy. This is a strategy that's also common for GICs. It's where you essentially pick bonds that mature

at specific time intervals so that you don't have to sell one that hasn't matured yet, potentially at a loss, like I just mentioned, if interest rates have risen since you bought these bonds. So you could do it every year you have a different one that matures or every six months. That's something that you can do. That way you always have something coming up to maturity. You're just essentially staggering the maturity of the bond funds. It's also, like I said, a strategy that is pretty common for GICs. But again, the biggest issue here, if you hold it to maturity and interest rates have gone way up, is that you're essentially, yes, you're getting your capital back. you're essentially yes you're getting your capital back but chances are that you will have lost your purchasing power even with the interest that you collected the coupons that you collected during

that time period so yes you don't have like the actual capital that you put in at risk but in terms of purchasing power which is what i believe personally that's what I look at when I look at risk. So from my perspective, there is still some risk there because yes, you'll limit your losses, but in real purchasing power, I think you still incur some losses. Yeah. Two really important pieces here that you mentioned. One, the laddering. I think all fixed income instruments with maturity dates, that is the prudent thing to do. Like you said, it's very common to do with GICs. Top of mind for a lot of people who are using these instruments all of a sudden out of nowhere when they didn't for the

last decade because you're getting paid a couple of used hockey pucks, and now you're getting actual real yield. So that's solid. And then the second piece here is there's no free lunch when it comes to risk. I think, what was it? That's basically how SVB, Silicon Valley Bank, collapsed by owning the safest asset known to man, T-bills, but not managing the balance sheet correctly when it comes to duration risk. And so there is no free lunch, whether it's known as, quote unquote, air quotes, the safest asset versus the riskier asset. There is no free lunch and just to always be aware of that. Yeah. Yeah. And clearly, you know, U.S. Treasuries, if your definition of safety is having your capital back at maturity, then obviously it's going to be saved.

But again, I think for me, that's a bit flawed because at the end of the day, you want to at least keep, if not increase your purchasing power. And as you said, with SVB, what was happening is that, you know, they bought these treasuries when the yields were super low and they needed to sell them when the yields had increased a whole lot. So the market value was, I can't remember on top of my head, but let's say it was 70 cents on the dollar. So they were taking a 30% loss every time they sold those U.S. treasuries, which are supposed to, a 30% loss every time they sold those US treasuries, which are supposed to be the safest asset. So that's why the Fed came in with their program, which apparently the program, which was supposed to be 30 billion, has kept increasing since more and more banks are actually opting.

Here is my surprise, shocked face. Yeah, I was looking at a chart yesterday. Apparently, it's like over 100 billion now. And instead of being a short term thing, it's keeping increasing. So what this means is there's more and more banks that are accessing this Fed facility where they are essentially saying, if you have a U.S. Treasury that has a lower market value, you can give it to us and we'll give you the actual market value, the actual par value, regardless of if it's, you know, 30 cents underwater or anything like that. You know, I haven't, I didn't go into detail, but it sounds like there is quite a few banks that may have splurged into treasuries when the interest rates were quite low.

There's a saying that I heard that is forever etched into my mind and it can't be taken out of there. And I think that what you just said reminded me of it perfectly. There is nothing more permanent than a temporary government program. So that fits this one quite well. So here's my shock. I think that that's a good overview, right? Because we talk about on this podcast, we talk about equities probably 95, if not more, percent of the time, and it gets all of our attention. And a lot of people are owning kind of 60-40 type traditional portfolios. And that's all good. And they're looking at more fixed income with rates being more attractive. And that's all good. And the idea of a bond ETF, it makes your brain break because the way that it's traded is traded like an equity. Well, it is. It's a security traded as like a stock on a stock exchange, but it holds bonds.

And the liquidity profile of that instrument is way different than the underlying assets, instrument is way different than the underlying assets which again makes my brain break and so they've always been somewhat head-scratching products to me but that doesn't mean that they're a bad thing or anything they've just always been a bit of a head-scratcher from my perspective yeah and i mean obviously if you buy the bond funds now like depending on the bond fund and you know the rates end up going significantly lower in the next year or two, you're going to be looking at pretty, pretty sweet returns. So it goes both ways. I'm not saying that's going to happen, but obviously, you know, I've heard, I've seen people, you know, wanting to do that trade. I'm not doing it personally, but you know,

it goes both ways. Yeah, it does. And any trade that requires me to predict rates is a trade I don't partake in. That's true. It doesn't mean that you can't make money on it. Of course you can. It's just hard to predict. Yeah, especially rates are so hard to- We've talked about it so many times. Yeah, so hard to predict because you have the short end of the rates, which is essentially driven by central banks, Bank of Canada, the Fed in the US. But then the longer you go on the curve, whether you go 2, 5, 10, whatever it is, then it's less and less dependent on what the central banks do and more what the market thinks where rates will be

and what premium they're putting on risk, whatever it is down the line. So the further out you go, the less impact central banks have, which just adds to the complexity of the whole thing. That's right. Yeah. Well put. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service

team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income.

But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. All right, let's talk about the wealth transferring machine. So I had a fancy midtown Manhattan dinner with some really smart guys and many of them were frequent CNBCers. So it was cool to meet a bunch of them. And guy was sitting beside, he works at this big wealth manager and they do venture. He does their venture side of the house.

And we got talking, learned what he did, vice versa, with me here with the podcast and FinChat. And he's talking about some of the venture investments he had made of startups that had gone really big. And he said, yeah, I'm a great VC, private markets guy, but I'm a terrible public markets investor. I'm a great VC, private markets guy, but I'm a terrible public markets investor. And he explained that his main thing is that everyone largely has the same or similar information in their process. There's too many eyeballs and therefore generating alpha is extremely difficult. That's kind of like the knock on picking individual stocks, which I think

is kind of a widely agreed upon knock on public market investing is how can there be any asymmetry? And so I thought about that for a second and I said, you know what? I actually agree with you 100%. But what I think we both agreed on very quickly when we got talking, and I kind of explained my point of view, is we both agreed that public markets, even though you have so many eyeballs and so much information about all these companies that everyone is trading on, public markets are very, very impatient. And we both agreed that they're more impatient than private, which is contrary to how you would expect given the liquidity. And so even though all this information is publicly available and there should be a lot of market efficiency, which I think that there is,

the reality is that market participants in public equities are very impatient. And I don't need to go on and explain all the times the market has acted irrational. I mean, just flip a coin any other day and you could probably say it is one way or another. And so, of course, my cliche corny guy at dinner, I pulled out the magic quote, the magic Buffett quote, the stock market is a device for transferring wealth from the impatient to the patient. And that is his quote. That is not me saying this. This is the greatest investor of all time pointing out that the stock market is a device for transferring money from the impatient to the patient. And though this is one thing that him and I could both certainly agree on.

And I think that it's just a quote that generally just describes what we do here on the podcast. You know, why take the time to be a long-term investor? It's not because, you know, you get to sit on your high horse and, you know, tell short-term traders that they're a bunch of idiots. It's because we you get to sit on your high horse and tell short-term traders that they're a bunch of idiots. It's because we're trying to make money. We're trying to make money. We're trying to compound wealth and make better returns. That's why we're long-term investors. The stock market is a wonderful device of transferring money from impatient to patient, rational investors. And so the market can be very irrational in the short term, but over the long term, buying businesses that earn high returns on capital, reinvest it,

be prudent allocator of this capital, create value for all of their stakeholders of customers, employees, and shareholders. These enterprises create wonderful results for the investor who is patient and smart enough to own them for a really long time. No, no. I think that that's an interesting one. I would disagree a little bit with the fact they said, you know, there's all this public information available and everyone's looking at the same information, but that assumes that everyone is reading all that information and using all that information, which I believe is an incorrect assumption to make. Even when you think about really sophisticated investors, you'd be surprised sometimes. And also- Because there's so many listed equities too, right? We're not all trading

on a universe of 50 stocks. No, exactly. There's 57,000 global active listings. Yeah. So I think that's the first place where I would disagree. And I saw that when people know I was really into poker when i was younger i still play from time to time but people that are probably my age are familiar with there was a big poker boom i think it was i started really in around 2000 maybe a 2002 there was chris moneymaker that won the world series of poker and then there was uh all the online wait his name was chris moneymaker yeah yeah i know it was like something else and i know that's not his real name but that's epic like you're just like what's gonna be my poker name yeah and then chris moneymaker and you know within

five years after that at most seven eight years you'd have all these really good poker books from poker pros where it outlined the math behind it the different strategies whether you played tournaments a different kind of tournaments all the different variances because people are familiar with texas hold'em but there's all different kind of poker too and if you wanted to put the work in, you could really become good. But you had to read these books, do the homework, or you could just be like, screw it. I know the basics of the game. And instead of reading the book, I'm just going to go play. And obviously, you know, probably lose money over time. But it just goes to show.

And I remember hearing a professional who did, like, really well. And he said, oh, like, don't you think people like is there still money to be made like all these books and so on he's like well people are just too lazy like not everyone will read the book and that that's kind of stood to me like and honestly i have to think investing is a bit the same way right i think some people just get either lazy overwhelmed or whatnot and even if it's all there for everyone to assume that everyone's using that information properly and also making, even if they are using the information, making the correct prediction

or assumption for the future. Cause there is some, you know, degree of looking to the future with your investment, right? You have to figure out like, where's the company going? Is there a reasonable probability that it'll keep growing going forward? It's like the midwet meme, you know, the meme where it's like the Jedi on one side, the like idiot on the inside, and then the person at the top of the normal distribution curve. It's like the two people on the outside are saying, just buy good companies. And then the person, the midway is going, well, you need to generate alpha by looking at companies, me X, Y, and Z and blah, blah, blah, blah, blah. And information asymmetry, blah, blah, blah, blah.

And then the people who make money are just on the outside of the curve saying, just buy good companies. This is what it reminds me of and dude i'm we need better names if this guy's chris money maker i'm braden braden compounding at mid-teens irr yeah i'm pretty sure that's his real name too that's what's kind of crazy real name yeah yeah yeah yeah yeah money he must have changed well you have all these last names, right? That are tied to like professions that your family used to do like centuries ago Like Belanger in my name. I think it's just a variation of being a baker

Cuz Boulanger is a baker and I think over time the name evolved to Belanger So I think it's probably must have been like his family must have been like in finances, like, you know, 100 years ago or something. I just found a site from 2021, pokernews.com. Shocking reveal. Chris Moneymaker lied for 18 years. His name is, in fact, Christopher Brian Smith. Oh, well, there you go.

Of course, it's Smith. Oh, Smith, yeah. Oh,ith he had to he had to go well i have to say i haven't been on top of poker news i guess recently i am officially you can refer to me as brayden compounding at mid-teens irrs well i guess i you know i thought you know based on what he was telling us it was his real name so i'll just say that man if i was in his position i'd lie about that too i'd be like yep it's my real name you bet you bet your ass i'm chris moneymaker so we'll move on to the last segment you obviously were speaking of simone belanger money maker i think that's what this title of

this segment that's it no it's been a good good investment for me overall i mean ever since i've owned it so of course brayden was referring to bitcoin i just wanted to do a quick segment here because it's been quite the year for bitcoin clearly if you're still looking at when it hit the top probably down 45 50 percent from there but I mean obviously you can look at I think even like a Shopify is probably still down like 45 50 percent from the peak so a lot of these growth names are in the same boat but clearly Bitcoin is more of a trades a bit more like a risk asset but so far it's more up more than 100 percent this year. And there's a couple different things leading that. So I think people may be wondering,

like, why is it up so much? What's really happening here? So I kind of outlined four main reasons. Obviously, I'm sure there's other reasons here. And at the end of the day, I think these are just kind of general trends I've seen and what people that are really well versed in Bitcoin and returns and these assets have been saying in terms of what's probably a big tailwind for Bitcoin. So these are the big four reasons. Anything you want to add before I get started? No, I think that that's good. I'm excited to see these four reasons. I mean, as you know, I keep a small little position as Chump Insurance and it feels good. Insurance has been doing well. Yeah. And I think that's important, right? To take it right

off the start. It's like, yes, these assets are off highs of 2021 highs or early 22 highs. Like many growth stock names, I think you mentioned Shopify, they're still down more than 55% from its peak. And the bears and the bulls will do whatever they want to create the narrative around what makes them feel good in terms of isolating the performance. If I just look at this year, it's great. If I just look at that year, it's great. Just zoom out and have an unbiased 10-year cagger and let the actual long-term story do the math there. So I'm no mega bull, no mega bear. I'm just in a position here where I know smart people care about it. I know you care about it. I know you're smart. And it's silly to bury your head in the sand of it and

just be bearish about it without even digging into it. Yeah. Yeah. No, I think that's well put. I think for my main thing, I mean, and I had an interesting discussion on Twitter with one of our listeners. And because I did an interview with Peter McCormack from the What Bitcoin Did podcast, released it on a Wednesday because we're just testing out to see. Maybe we'll have once in a while, you know, special guests on Wednesdays. Not necessarily Bitcoin, but we just wanted to see how it would do. And then people that wanted to hear the interview could hear it, but still have our regular episodes on Wednesday and Thursday. And I was chatting on Twitter with one of our listeners and he said, you know, I'm not super favorable about Bitcoin, but if you

listen to the whole audio book on easy money from Ben McKenzie, I can definitely, you know, listen to the 45 minute interview that I did, uh, that I did with Peter. And I thought that was really good. Cause look, I, what, the only thing I'm asking is, you know, you don't have to agree with me on everything. You don't have to agree with me at all. That's fine. But at least, uh, like have an open mind, listen to the arguments. If you still don't disagree, that's okay. But that's how I try to approaching. That's why I listened to the Ben McKenzie book is because I wanted to see the other side. And I'm always trying to see kind of the counter argument because I try to make poke holes in my own investment thesis. And I think that's important.

Just being open-minded is what I always say, being able to change your mind is the investing superpower. That kind of goes hand in hand with being open-minded, right? If you're open-minded, you're able to do that. And that's where it all starts from in terms of being able to have superpowers. And look, if someone... You do your own research, right? Everything. You cannot borrow conviction from me, from you, from people on the talking heads of CNBC or Bloomberg. You build your own conviction and go from there based on the research you do. You just compile all of the thoughts. I believe my job as a thinker is to compile the thoughts and reasonings from different sources, different people, different facts, and then compile my own.

You know, take the good stuff from here, take the good stuff from here, throw this out, throw that out. That's kind of your job as a human to dissect information. And, you know, being open minded is a key aspect of that. Yeah, no, exactly. And so the first reason, without further delay, the US spot Bitcoin ETF. So there's been a lot of news around that this year. So we've talked about it a little bit. So BlackRock announced earlier this year that it had submitted a Bitcoin spot ETF application.

For those who don't remember, BlackRock has only ever had one ETF filing not approved by the SEC and more than 575 approved. So they have a pretty, you know, usually when they submit an ETF application, they're pretty sure about it. Earlier this summer, the U.S. courts overruled the SEC's, so the Securities Exchange Commission Commission rejection of turning GBTC into a spot ETF the SEC decided not to appeal the decision which means that the spot Bitcoin ETF is most likely to happen at some point in the near future no one really knows obviously that'll be up to the SEC there are some timelines that they have to follow, which I'm not 100% sure on, but most people that I've seen are suggesting either a couple months up to a year is the longest time frame I've seen, or 18 months, sorry. Now, the second reason is that high-profile

crypto fraudsters seem to be in the rear-row mirror, or let's just say, sketchy businesses. Now, FTX was clearly one of the big ones here but there are other ones. One that comes to mind is Celsius and its founder Alex Mashinsky. There's also like I talked for last Thursday with Dan there's also the Binance settlement and CZ facing charges with the U.S. the Department of Justice. So that happened last week. That was probably one of the bigger dominoes less to fall. And there was also a slew of bankruptcy in the space, of course. And I think more and more people are realizing that centralized businesses don't affect the

actual Bitcoin protocol. You know, I've been I was vocal about that at the time but i think with a little bit of time now that has passed since a lot of the events that we saw in 2022 i think and people are seeing that the protocol just kept on working even though the price really declined during 2022 because of the overall bearish sentiment i think that has a pretty big impact on it too now obviously the ballooning sovereign debt around the world, that's the third reason. There's just more and more people realizing that our governments are spending beyond their means. And it's been the case for years. But now with higher rates,

the cost of service, that debt is starting to get extremely large. I mean, don't look any further. The federal government here in Canada, they did their fall economic update and even the projection in the interest costs is astronomical it's increasing very quickly because as the government debt rolls over it's refinanced at higher and higher rate and if history holds true governments will most likely look to devalue their currency in order to make those debt payments more manageable, which could lead to other problems like inflation. So obviously, whatever they do, there's going to be a consequences, whether good or bad. And a lot of people are looking at Bitcoin as a way to hedge against it because only 21 million Bitcoin will ever be created. And that scarcity has value.

And at least in my opinion, and I think a lot of people agree with that. And the more you talk to people that are outside of Canada, the US, Western Europe, that have been in countries with high inflation, the more you'll see how receptive they are to that last argument here. And the next one is the upcoming Bitcoin halving. So the halving simply means that the rewards that are given to the miner, the computer that performs the transaction after performing a complex math problem. So the reward will go down in half and this essentially brings down the new supply of Bitcoin into the system. There are currently over 19.5 million Bitcoin that have been created. And obviously, the maximum ever created will be 21 million.

But the halving just means that, you know, every essentially every four years, there is less and less Bitcoin being created. So in the past, the halving has actually led to bull markets in Bitcoin and crypto. Again, don't take this as me saying that it will be a leading a bull market. I have no idea. But history has shown that typically within a year or so after that halving, Bitcoin tends to perform pretty well. So I think those are the four main reason that it's performing well. If I missed any, just let me know on Twitter. I know some people are really even more into the Bitcoin market than I am, but that's kind of where

the big four themes that I've seen. No, it's good. So in summary, there's the US bought Bitcoin ETF that's very likely going to happen in the future. There's the crypto fraudsters, perhaps in the rear view mirror. I have to say, this space brought every scumbag imaginable to the scene. And it's so ironic because Bitcoin is the complete opposite of that. And they can't actually affect the protocol and it continues to hold its value minus all the scumbags and bad actors around the exchanges and other scam coins. The ballooning sovereign debt you mentioned, to me, this is the thesis. Yeah. Like in a nutshell, right? It's going to eventually have to change and i'm not the

guy i'm like the least you know kind of doomer when it comes to macro that you can come to but you have to realize that eventually you know eventually you stack enough elephants on the four feet of really thick glass in the middle of the lake. It eventually cracks. It eventually does. And then this halving thing. So dude, I'm not a technical analysis guy, but you know that rainbow chart that shows how Bitcoin follows that rainbow that's logarithmic. The price follows that. I'm not sure I've seen that. Yeah. Oh, it's really common.

I know you have seen it. I'm just probably not describing it well. It's weird how much it follows that logarithmic scale as the halving happens in terms of price. Yeah. It's actually bizarre how well, through all that volatility, it's nuts how well it's actually bizarre how well through all that volatility it's nuts how well it's actually followed that logarithmic trend up up to the right no no and and i didn't like so the

halving is anticipated to be in april of 2024 so just for those last wait do we not know or it's a number that gets hit yeah it's a number that gets hit? Yeah, it's a number that gets hit. With the current pace, it would be April 2024. Yeah. They're usually pretty accurate as to when it will happen as well. Yeah. So the last one was May 2020. This one, April 2024.

Yeah. Interesting. Does that destroy the unit economics of the miners or no? Or does it make it better for them? half if the price you know more than makes up for that but the biggest thing for bitcoin mining is really you know the the compute power and how you constantly have to make sure you have pretty good machines or at least maybe not the forefront the highest performing machines but pretty close to it if not you end up just you know losing track in terms of bitcoin miner that's why there's been so many bitcoin mining companies that have gone bankrupt and

there's been it's been very difficult for any one company to accumulate so many so much ash power which is just a computing power to be able to perform these mathematical problem and you know you gotta upgrade that like competing power constantly right it's a huge capex outlay like constantly yeah and then your cost too right you also have to have a relatively cheap source of energy so all of that has actually kept bitcoin mining relatively decentralized because there's it's you know i think you can have a decent business but it's not like you can consolidate and become the only player. One of the things not going to add up, whether you can get a cheap enough source of energy or you're just behind on the computing power.

Right. Yeah, I think we looked at the miners before. It was basically my thesis of it was their balance sheet is their income statement. Yeah. If I remember correctly. Yeah, that's it. That's the way to think about them. my thesis of it was their their balance sheet is their income statement yeah if i remember correctly yeah yeah that's it that's the way to think about yeah hood aid was the one because they were trying to keep as much bitcoin as they had so basically they like sell as little as much as like revenue is bad because that means they sold bitcoin yeah that's it yeah yeah i'll probably have to look at them soon enough,

but maybe in the year end as we look at company earnings. Interesting business to look at though, like just almost as a accounting puzzle for nerds like us. Yeah. Because you literally have to look at their balance sheet as their income statement because they're doing everything they can not to sell the asset. It's quite fascinating. Well, that does it for today's show, folks. There is the great debate that you have to go settle on joinTCI.com.

Maybe it's just my screen resolution, but that shirt is red. Remember when people were debating if the dress was gold or was it gold or blue do you remember that oh yeah i remember that man it was like an internet sensation like i don't know maybe 10 years ago yeah no i remember that yeah well you're gonna have to go settle it for us on join dci.com what color am i red or orange orange it does look i think a little redder on here but definitely looking at it in high def person yeah especially i got in high def yeah irl i also had an eye exam so my contacts are the optimal prescription now yeah exactly well there you go okay well the people are gonna be judging from the video not from IRL. No, that's right. Let's see. Let's see.

So let us know in the comments at jointtci.com. It's not the same color, for sure. No, it's hot Ferrari red is what it is. Yeah, we'll see. Let the people decide. Let the people decide. I don't want to create any more bias here. That is at jointtci.com.

And we just rolled over into a new month. So our portfolio updates are available. Thanks for listening. We'll see in a few days. Take care. Bye bye. The Canadian investor podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.