The Canadian Investor - When to sell, Ethereum ETF and CNR makes a bid for KSU

Episode Date: April 26, 2021

In this episode of the Canadian Investor Podcast we start by talking about Canadian National Railway’s bid for Kansas City Southern. Simon then gives an overview of Ethereum and the recent Ethereum ETF listings on the TSX. We finish the episode with a discussion on when to sell a position. Tickers of stocks discuss: CNR.TO, CP.TO, KSU, ETHH.TO, ETHR.TO, ETHX-B.TO Want to send us a question? Check out our Anchor.fm link in the description below and leave us a voice message! Getstockmarket.com Candian Investor Pod Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital --- Send in a voice message: https://anchor.fm/the-canadian-investor/messageSee omnystudio.com/listener for privacy information.

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I'm Brayden Dennis, joined by Simon Belanger. How are we doing, Simon? We got, I think we got a pretty fun episode, in my personal opinion. Yeah. Yeah, I'm doing well. Yeah, it's a mix between uh news and uh you know some fun discussions that we'll have so it should be a fun episode um all right give us the lowdown what's happening cncp rail uh what is going on the kc southern bid

this this was out of left field yeah yeah i not sure a lot of people expected this i'm sure uh canadian national was working on this probably since uh this cp bid was announced um so basically there's a new uh canadian national bid to purchase kansas city southern it is higher than the cp bid um it's been interesting to watch the business news because there's been some jabs between the CP and Canadian National following that offer. CP sent a letter to US regulators saying that the CNR purchase would be anti-competitive. CNR shot back at CP's claim by sending a letter to those same regulators, basically saying that it would be more competitive in terms of options versus trucking, and you have access to the map. So the network for CN is actually quite extensive already.

If you add up Kansas City Southern to that, they would have a really wide network. So east to west Canada, all the way to the Gulf Coast in the US, and then also a bigger western exposure in the US all the way to Mexico. Whereas if you have CP, CP only has mainly a railway that goes from east to west Canada, a little bit in the US, but not much. So I actually, I'm not sure honestly if this CN bid will be accepted by regulators because I'm kind of buying what CP is saying over here and I am a CNR shareholder. The US has had a history of blocking these kind of deals if they perceive them as anti-competitive. And just looking at the map, it's hard to argue that this would create a more competitive environment because it would definitely consolidate the geography in terms of the access for shipping and freight for CNR compared to CP. So I don't know what you think.

What are your thoughts on those i don't know if i have any real uh hot takes other than it would be pretty massive this network for both businesses but especially for cn i mean given their reach already if you were to add on the kc southern network cn just becomes an absolute behemoth and so i guess they're willing to pay more uh for it they have a better balance sheet and more cash so i mean if they if they want to go and do that i have no real insights onto the regulatory landscape in in rail so i'm just waiting to see what happens. Yeah, it'll be interesting. I mean, it sounds like Kansas City Southern is really considering this CN offer for its shareholders,

which I obviously do not blame them because it's more generous, but it will all come down to the regulatory approval, in my opinion. Yes, sir. All right, moving on. Stocks sold off, I want to say Thursday. I think it was Thursday. When Biden's tax plan chooses to increase capital gains tax, especially on high net worth, high earner individuals, it would go up to 43.4% if you make more than $445,000 a year.

Which leads me to, I don't know if we ever, I think we slightly touched on it, but back in January, there's this proposal to include more on the capital gains tax for Canadians from 75% to 75% from 50%. This was coming out back in January. And I don't know if we ever really fully discussed it. So it would mean that your inclusion on capital gains tax goes from 50 to 75% of your gains for Canadians, which also kind of sucks. So it like uh both countries are looking to raise taxes and via capital gains is where they're going and um yeah we're seeing that shake out in both countries right now or at least proposed anyways yeah yeah exactly and we were texting yesterday and you were asking me about bitcoin and why the uh the big drop and from what i've read one of the the big issues is people

were selling off because of that proposed increase in the u.s capital tax gains and then you add that with people being over levered so it kind of compounded the correction um so if some people are wondering that's for the most part what happened with the 20 drop in price yeah i mean if you own crypto you got to be you got to be stomaching those drops. I was just curious about what did I like miss something. And I think that goes back to, I probably need to do some more work on, on Bitcoin. And I have been doing some more work on it and I've been slowly gaining a position because I think it's kind of goofy not to, even though I'm still nowhere near as knowledgeable or as convinced about it as you.

But, I mean, hey, I'm coming along. I'm coming along. Exactly. Speaking of crypto. Yeah, go ahead. So speaking of crypto, I've had a lot of people reaching out to me asking about Ethereum and if they should be investing in Ethereum more than Bitcoin. It's not, in my opinion, one or the other.

There are two very different things. Just to give a brief overview, and obviously if we have listeners that understand Ethereum well, they'll know that this is a very brief overview. There's lots to learn and maybe later on in episodes we'll have a maybe someone a guest that can go into more detail about decentralized finance and also some of the the nfts for examples because they're most of them are based off of the ethereum network so what is it it's uh fully decentralized it's based on a consensus basis just like Bitcoin from that perspective it was created by Vitalik Buterin he's a Canadian Russian programmer so there is some Canadian

aspect to that ether is actually the currency so a lot of people interchange ether and aetherium so aetherium is actually the network and the fuel, so the coins or the price that you see is called Ether that's used on the network. There's not a fixed supply for Ethereum or Ether. It does increase over time. There's a fixed schedule of issuance. So for each block that's completed by the blockchain, there's two new coins that go into circulation. So there's not a hard cap like Bitcoin. But if you look at the supply increase, it's very reasonable. It's a steady trajectory. It's not necessarily like we've seen sometimes our governments do with fiat, for example.

It's a programmable blockchain where developers can create decentralized application, and that's really powerful. And I think it's going to be really interesting personally, that aspect to see it progress over the next 5, 10, 15, 20 years. And the goal for the Ethereum network is to truly decentralize the internet because a lot of companies that we invest in and a lot of ways that the internet is created there's a central place where the transactions are done so for example of this is there could be eventually a program that's created a decentralized program where uber drivers currently deal directly with the customer. So that decentralized application, the code would basically be the intermediate between the driver and the actual customer. So there would no longer be a requirement for having the middleman Uber who kind of is the centralized party in this

situation. So there would be a removal of the third party. that's why people a lot of people are excited about that technology and it's based on smart contract technology and it has some very strict rules so it's self-executing it's very strict and it's immutable so it cannot be changed the coding language for some of you that may be into coding it's called solid the. And basically, the code is based on ifs. So if you do action A, then result B happens. If you've heard about DeFi, Decentralized Finance, most of the projects out there are actually built on the Ethereum network. So that's in a nutshell what Ethereum is. I still need to read more about it. It's very interesting, very promising as well. But that's why in terms of market cap for cryptocurrency, it's second behind Bitcoin. 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 a cool story. And this Vitalik guy, I'm calling him a guy now, but when he started this, he was a kid. he went to private school in toronto and then he went to the university of waterloo dropped out went back home to toronto and and proposed the ethereum white paper in 2014 so he was young man like he was really young and uh in 2011 he founded like bitcoin magazine or something and so he would have been like 17 yeah he would have been 17 years old um and then just a few years later he founds ethereum and uh he even got some uh a grant scholarship from peter te, founder of PayPal. So this kid's smart.

This kid's crazy smart. He's doing nuts things. Like what was I doing at 17, man? Jesus. I was probably partying. I definitely was. Yeah. And, you know, kind of to segue as well.

So to get back on the stock exchange. So there was some big news this week regarding Ethereum. So Canada, the security exchange in Canada approved three new Ethereum ETFs, a bit like the Bitcoin ETF that were approved a few months earlier. And before I talk a bit more about them, it's kind of interesting how Canada is really kind of jumping into that versus the US, right? There's tons of application for Bitcoin ETFs in the US that are still waiting for SEC approval. And Canada, on the other hand, is just approving those and has for pretty much all of them. There's also a USD option too. So I found that interesting. You want to add something before I talk about the three ETFs?

Just a quick overview? No, let's hear about some of these ETFs. Okay, so there's three new ETFs. So the first one is PurposeETHH.TO. There's a 1% management fee. The MER is management expense ratio is capped at 1.5 percent the reason they say it's cap it's because they can't know what it is until the full year is done and all their expenses are captured but they have said that they'll cap it at 1.5 percent so the second one

is evolve etf ethr.to zero percent management fee until May 31st 2021 then 0.75% after that. I could not find any mention of the management expense ratio whether there's a cap on that or not so keep that in mind for that one. Last one is the CI Galaxy Ethereum ETF the one I would probably invest in if I were to select one of these ETFs. Management fee waived until June 15, 2021, and 0.40% after that. And the management expense ratio is capped at 0.95%, which is considering the trading fees of cryptocurrency right now, to me, that's very reasonable. I know it may sound a bit high compared to traditional index funds but considering what's out there that's very respectable so if i had to choose of the three just based on the fees i would choose the sci galaxy ethereum etf i don't have the ticker right

in front of me but i will add it to the show notes that's really not expensive i mean when you consider the spread that you got to pay on these things on the exchange anyways it's really not expensive i mean when you consider the spread that you got to pay on these things on the exchange anyways it's really not and i see like these management fees waived uh really just trying to get some fun flows as these things roll out it's pretty pretty clever but uh you can see how competitive it's becoming right yeah and all three And all three have a BTC ETF as well. So I feel like they've learned from the BTC ETF. They know that there's US competition coming in the works with the SEC. So I think they're very, like you said, they're being proactive, trying to cut some slack to people, encourage them to join in on their ETF. So I feel like that's where it's coming from. So

it's definitely interesting compared to how they launched the bdc ones all right i'm really excited for the next segment of the show we're going to talk about selling and selling stocks is something that i think that we haven't really done a good job of doing a deep dive into we've talked about it but i think this is a good job of doing a deep dive into. We've talked about it, but I think this is a good opportunity for us to talk about a framework for how we think about selling and when to, when not to. And this is obviously not investment advice, just our opinion on our framework of selling holdings and how I view volatility and how it comes into this mix. So I'm going to start talking about volatility and you'll see why this is important for selling and some other important investing concepts that I think about all the time and I think are really important. So

I'm a huge believer in the Terry Smith concept, which is buy good companies, don't overpay, and do nothing. And the do nothing part is probably the most important and the hardest to actually do. Because buying is easy. Buying what you think is good or great is a little bit harder, but somewhat easy. But do nothing is very difficult. And I try to sell as little as possible. So let's talk about a scenario of how knowing what you own, and selling are tied at the hip. So again, that's knowing the business that you actually own really well, and how selling are so attached. Okay, so let's say you buy a stock by the name of Aerotine International. It is a cutting edge high tech firm out of the Midwest, awaiting imminent patent approval on

the next generation of radar detectors that have both huge military and civilian applications right now. It's exciting. Now, if you hear that, if you hear that pitch stock and it sounds familiar, it's the penny stock that Leonardo DiCaprio pitches in his penny stock scam in the Wolf of Wall Street movie. So that might be why you've heard of that one before. Now, if you got swindled into owning Aerotine International, either from it's some goofy stock promotion or your buddy told you that you need to own this cutting-edge, high-tech firm out of the Midwest

with huge military and civilian applications right now. And you buy this thing. Now the next two, now you own it. The next two days, stock loses 20% of its value. Okay, this happens all the time. What do you do? Like, you're going to sell this thing the second you can, probably because you don't know a thing about the business. And here's where things get interesting. Say Aerotown International did have this cutting edge high tech firm capabilities. And it is actually a great business, hypothetical. and it is actually a great business, hypothetical, there's going to be volatility the whole way of owning this thing, especially if it's a smaller cap. So you got to really know the business to be able to make that distinction or else the first second you get when the market opens, you're going to sell the thing.

So let's look at some data from Monster Energy. And I'm pulling this a physical book right in front of me now, because it's some data from 100 baggers. So this data is up to 2014. But the stock is actually up even more since then. The stock is up 75,000% since IPO, like Monster Energy Drink, which is absolutely mental. Okay, so in 2006, Monster Energy finished up 70.96% up on the year in 2006. I'm going to read off the monthly change in price from January through to December. 11.37%, 6.38%, 35%, 2.66%, 42.83%, 2.99%. Okay, so the first half of 2006, this thing has done nothing but go up.

Like it finished Q1 up 60% and Q2 up 51%. So now you're like, okay, this is when this stock pitch comes in. You're like, your body's like, look, I'm already up over 100% on this thing. You buy it in July. Okay. Of 2006 monster energy could be a great company, but you don't know. It starts July. It's down 3.3 per six, 3.36%. In August, Simon monster energy stock lost 40.13% of its value. No, you'd be like, what the hell, man? What did you, why do, what is this right? Like Like, terrible. Now, in September, the stock is up 18%. It falls a little bit in October again. It's down 11.46% in November

and then finishes 2006 in December up 19.77%. Absolute rollercoaster. Finishes the year up almost 71%. Now, if you didn't know Monster Energy drink, and you're just going for this high flyer, and you bought after a great stellar first year of 2006, and then proceeded to lose more than 40% of its value in two months, you wouldn't know what to do. So you gotta you gotta really know the business because you'd probably sell the thing and then miss out on, you know, a couple of hundred beggars. So looping that all together on real reasons to sell, assuming you actually have done your

due diligence, you ideally should be selling never, uh, if the great never if it's a great business and confirm the thesis over and over again. But this is easier said than done. Sometimes you might need to move on from the business. So I have five reasons I've written here on why I sell and I think it's a decent framework. So number one, you were wrong just straight up. Your thesis and research was short-sighted. You didn't see, you underestimated competition. You just didn't see something in your thesis. Your main thesis was wrong and it's played out wrong.

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. Number two, you've grown as an investor and realized that that business is really not that great. Number three, you've gotten your multiple expansion and don't feel to feel the need to own it at higher multiples. I've done this. I mean, I am not a deep value flip and get out type of investor. But sometimes I've bought in stuff that's way too cheap. At like eight times earnings, it goes to 18 times earnings. And I'm like, Okay, and I think it's quite fairly valued for a mediocre business at 18. So I'm out. Number four, you need capital for a better idea. Now this one, be careful with because you can always make more money in life. You can always save more. You can always get the savings

rate down to invest more money. It's the same concept of last episode we talked about, you don't necessarily always need leverage. So be careful with this one. I mean, don't don't be in and out of names for no reason, just to add to something else. And then number five, you need capital for your life. This is the importance of the emergency fund. Because if you do not have to sell great businesses unnecessarily, you're not unnecessarily breaking compounding. That's why the emergency fund is so important. But hey, sometimes you just need money for your life. Things happen, things come up, and that could be a pretty decent reason to sell stocks. stocks. Number six that I, you know, we'll say asterisk number six, which Simon's going to talk about, which is peeling off the principle for retirement withdrawals. So do you want to get into that? Yeah, yeah. And those are great. They're probably the five rules I live by as well for selling. And like you said, sometimes, you know, stuff happens and you have to sell even if you have a pretty healthy emergency fund. But yeah, so when it comes to decumulation for

retirement, there is a lot of people may have heard the 4% rule for retirement withdrawals. So I'll give an overview of what it is, some of its limitations as well. so it's based on a 1994 study by William Benjian Ben B NGN so I'm probably butchering the name looking at he was looking to establish a rule for withdrawal to have sufficient funds for a 30-year period regardless of market conditions so what you want to do if you want to apply this is the first year you retire you withdraw four percent of the total value and then every following year you withdraw the same amount but just did for inflation so obviously if there's a two percent inflation then you withdraw two percent more than the initial

time the starting point for this should be about you should have about 25 times your desired annual retirement income to be able to do the 30-year. Again, there are limitations to this. This was also done in 1994. The data was taken from, if I remember correctly, the 1930s to 1960s. I may be off a little bit there, but it's not very recent data, so that is one asterisk for that study. Some people say that it's too risky. It's been criticized for being too risky.

You can also make an argument on the other end of the spectrum saying that it is too conservative, especially if you have a life expectancy in retirement that's relatively short. So obviously, everyone wants to have a healthy life as long as they can. But some people may have pre existing conditions that really limits their life expectancy. For example, they could have, you know, very best case scenario, only 15 or 20 years to live, you could have someone with a very, or if you just retire really late. Yeah, yeah, exactly. So that could be another example of that. So you may not need

the 30 years worth of saving. So those are all things to factor in. But it's, it's mentioned a lot in terms of retirement rule. The last thing that it does not take into account is a lot of people for their retirements will have that money in registered accounts specifically RSPs so it does not take into account the required withdrawals so it's for sure you can still do the minimum requirement withdrawal when you have a riff or a lift but you know you don't necessarily need to spend that money so you could redirect that to another type of account but it still does not take into account that so those, they're all limitations. What I would recommend personally, if you, depending on, you know, you have to make your own assumptions when you retire, you may also have other type of incomes that are, you know,

not necessarily invested in the stock market or bonds. So you have to factor that in, whether it's a pension, whether it's income from properties, whatever it is. So these are things to factor in. Look at your own situation, but that could be a good baseline if you're looking to have enough funds for an extended period of time when you retire. Yeah, that's a good synopsis of that rule of thumb, 4%. I think it's pretty common, that number that gets thrown around. Again, with any rule of thumb, it's just a guideline and you got to kind of work with your own situation

and go with what makes sense for you. See, Mom, I think that's good for today let's uh let's wrap this up as always getstockmarket.com head there and you can see uh stratosphere you can talk about you can see some of the names that i talk about in terms of knowing what you own i do some deep dives into some businesses that you've heard on this podcast as well um So like we did GFL last week, that's a good example. And you gotta, if there's one takeaway from this, how selling and volatility, and they all kind of shake out together, would you agree that knowing what you own is the common theme to help mitigate some of these issues? Oh, yeah, definitely. I mean, just knowing what you own, you feel a lot more comfortable if

there's a big drop in price because you know the business well. So you don't feel that sense of panic. And that would be a big issue if you don't know, then you're you may panic and do a sell and be regretted down the line yeah because you know that monster energy i mean that's a cherry it's a cherry picked stat the monster energy one but there are many businesses out there that if you sold early you would have missed out on life-changing wealth. And I hope I don't ever have one of those. But who knows? Maybe I will. And I mean, I'm sure you own stocks that you look back at the charts.

Like I own, for example, Teladoc. I've had instances where it dropped 40% in price and I still held on. And I'm really happy I did hold on over the long run because then it exceeded the previous peak. But that's because I knew the business. So I'm sure you can think of examples, especially for like high growth businesses. You know, it's not unusual to see that 30, 40% drop and it's a good business. You just have to just have to hodl. Yeah, you got to hodl. Hold on.

Exactly. I don't mean to drag this on too long, but you know what happens, right, is some of these high-growth businesses, they could be great. They could be building a moat. And the valuation has just gotten a bit insane. And it's gotten a little ahead of itself. So those sell-offs are just natural, normal corrections. And when they're happening though, they feel like there's something you're missing, right? It feels like there's something in the business that you might've missed or there's something

out there. So you start Googling what's going on and you realize that there's nothing other than the valuation might a little just got ahead of itself. You might see some goofy motley fool article about the company, but that's that's what we'll get into that on another on another podcast. All right, guys. And one last thing I wanted to mention before we let them go. So the poll is done for that we did on Twitter. So if some of you are wondering what the name one is, to my surprise, I thought it would be another one. It was Blackberry. It finished Blackberry, eh?

Yeah, close to 40% and plus more than 200 votes. So that's what the people seem to want. So in the next couple of weeks. 200 votes in total or 200 votes so that's what the people seem to want so um in the next couple weeks in total or 200 votes for blockberry uh 200 votes i think in total maybe a bit closer to 300 i don't have it in front of me but um so you guys can rest assured we'll be doing a review of it in the next couple weeks um i don't it won't be next week because we have a planned guest but probably the week after that guess i start should start doing some uh research on research in motion actually they don't go by the name anymore do they no no just bring out your your old keyboard phone i'm gonna bring out

my blackberry bold i'm gonna do the whole podcast recorded on my BlackBerry Bold from 2008. Quality won't be good. Maybe I'll just use the fancy keyboard. All right, guys and gals, thank you so much for listening. This is the Canadian Investor Podcast. We will see you next week. Bye-bye. The Canadian investor is not to be taken as investment advice.

Braden or Simone may own securities mentioned on this podcast. Always make sure to do your own research and due diligence before making investment decisions.