The Canadian Investor - Why Buffett’s Cash Pile Is Growing and Bitcoin’s Post-Election Surge

Episode Date: November 18, 2024

In this packed episode of The Canadian Investor Podcast, we start by discussing Bitcoin's impressive rally following the U.S. presidential election. We explore how a less hostile regulatory environment could impact the crypto industry and debate why some portfolio exposure to Bitcoin might make sense in today’s macroeconomic environment.   Switching gears, we tackle the ongoing debate about whether the stock market is overvalued, comparing the top 20 U.S. companies today to 20 years ago. We unpack how today’s high-margin, high-growth companies differ from the commodity-heavy, low-growth businesses of the past and why a blanket “stocks are overvalued” statement might overlook crucial nuances like revenue growth and operating margins.  Finally, we analyze Berkshire Hathaway’s ballooning cash reserves, Warren Buffett’s aggressive selling of equities, and the implications of the Buffett Indicator hitting historically high levels.   Tickers of stock discussed: BRK-B, AAPL, NVDA, MSFT, GOOGL, AMZN, 2222, META, 2330, LLY, AVGO, TSLA, WMT, JPM, V, XOM, UNH, NOVO.B, 700, ORCL Beam Radiology Website Beam Radiology - Consultation Request 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 to the show. My name is Brayden Dennis, as always joined by the rejuvenated Mr. Simon Belanger. We're back, baby. Here we are. The boys are back and you're back with a new back.

Yeah. Tell us, you flew across the country, next level tech. Look at you. You're a trailblazer in the world of medicine here. Yeah. I mean, or a guinea pig. No, but I flew. So if you've been listening to the podcast for a while, you know, I've been dealing with chronic back issues for like almost 20 years now since I was a late teenager, early 20s. And unfortunately, as you get older, it doesn't get better. And I have a friend of mine who has a clinic called Beam Radiology that specializes in pain treatment. So I got a treatment done. I had to fly to Calgary. It's called PRP, platylo-rich plasma, where they inject that into your disc.

And it's shown some very promising result to actually help your disc and the collagen around it kind of heal over time. So, so far, I mean, I'm doing better than before I got the shot. And it's supposed to keep improving for two to three months. And it's, in most cases, it's one and done. Oh, it's a one and done yeah one of those things i feel like you got to do it every year or whatever yeah like cortisone shots those are the most typical treatments so um unfortunately with our medical system right sometimes you have to if you're dealing with chronic pain uh you have to be your own best

advocate and you know i had to do this especially with expecting a second little one. I'll be picking up a toddler more often as we get our next little one. So if you're someone that's been dealing with chronic pain, they have some treatments that are covered by provincial programs, some that aren't. But again, I know the feeling of dealing with chronic pain for long periods of time. So I'll put the link in the show note. It's a phenomenal clinic, like nothing like I've ever seen before. And he's your buddy from growing up too. Yeah, yeah, yeah. Very list.

One of the smartest, hardest working guy I've ever known, yourself included. And you're pretty high up there too. Hey, no, he's doing way cooler stuff than me. I can guarantee that. Dude, we got a good show here for the listeners. It's the first time you and I have got on the mic since the US election and we're back. It's like feeling like 2021 vibes a little bit. It irks me a little bit with this much excitement and kind of some hot air in the speculative assets. I saw Dogecoin is worth 53 billion in market cap as of recording today,

which would make it a higher market cap than Square or AKA Block now. That would be the 79th largest technology company on earth by market cap. And so things are going a little crazy. And I looked at your show notes and you wanted to talk about Bitcoin today. I was like, move that up the dock because I want to know what you're thinking. And I never thought I'd say that. And then we're going to talk a little bit about just top of mind. I'm going to ask the question and we're going to discuss with data rather than just vibes, are stocks overvalued today? And so the case for and the case against are stocks overvalued. But dude, I saw a hilarious excerpt on, is it really feasible to successfully trade election results? Polymarket and Calchi are the

top. I think all the brokers are putting it out there now. I saw Robinhood has this where you can bet on the election. I think up until just a day before, Trump was only a very small favorite. But as you saw the results come in, he kept creeping up and up and up before it became clear he was going to win. It was at like 96, 97%. And I found an excerpt from Going Infinite, that book about Sam Bankman Freed, good old SBF. During his time at Jane Street, he built a 2016 US presidential election results prediction bought, basically, before any mainstream media outlets would know. And so him and a bunch of analysts were able to obtain state-level results within minutes before CNN. Despite learning of a pending Trump victory before anyone else,

Jane Street still managed to lose money on their trade because they bet against U.S. markets. Through their short position seemed like the right choice. As the night went on and the market digested Trump's victory, a U.S. rally ensued. So the point here is it's really easy with hindsight to go, of course he was going to win or of course markets were going to react like this. But even something as sophisticated as Jane Street looking to trade against this before they have, you know, before even mainstream media has the information, it's a really hard game. Like this betting on short-term markets is really difficult game yeah and the way that polymarket works is pretty amazing right like people think they're betting against a bookie but it's like on the blockchain so they're actually betting against people that are taking

the other side as well and you could have made money throughout believe it or not by switching your bets right before the elections like several weeks weeks and months. So at some point, I think Trump was like 65% a few weeks before. And I saw someone saying like, oh, that might be like a bit too much at this point. You could probably make money betting on Harris to return closer to the odds, maybe 55-45, and then you can switch your bet back. Yeah, you could have hedged it as the line moved yeah exactly so it's pretty fascinating to look at it but i was like yeah i think uh bloomberg in the u.s had like a really they had not only polymarket and then a few other betting odds

and you could just follow and like you said like they called it like it was i think 90 plus percent pretty much every single market several hours before the first mainstream media outlet called it. So it was just interesting to be seen. And I think, honestly, it's probably changed the way that we'll be looking at elections going forward. And I wouldn't be surprised that we'll be having something like that when the Canadian elections comes up. I'm sure there's going to be some betting odds for that, too. Yeah. Canadian elections comes up. I'm sure there's going to be some betting odds for that too.

Yeah. The biggest loser was the pollsters saying that it's going to be a 50-50 coin flip, right? They kind of lost that. They're just no longer relevant. I think that this election just puts that to bed. Quote here, what would have been a $300 million profit for Jane Street turned into a $300 million loss. It went from the single most profitable trade to the worst in Jane Street history. My goodness, it's a tough game. All right, let's talk about Bitcoin. Like I said, I didn't think I would ever give you the knock and say, pull this to the top of the show. But dude, people want to know, I want to know, what do you what are you thinking here yeah i mean i think well first of all obviously unless you've been living under a rock uh bitcoin has gone absolutely like i mean almost parabolic since the election i thought it might my personal view and

i'll be very honest i was completely wrong and you know i've owned bitcoin for a long time is i thought it might be a seldom use kind of events. That's that's where I like I texted a buddy of mine. I was like, yeah, it's probably going to be seldom use because, you know, it had kind of slowly crept up around 70,000 U.S. around like just before the elections. I'm like, OK, maybe the the market's already pricing it in. And, you know, a polymarket was already showing kind of Trump a little bit in front. And I was planning to do one on a research piece from Sam Callahan and Lynn Alden. If we have time today, if not, I'll keep it for another day. And whether you're, you know, you enjoy, you know, you're really interested in Bitcoin or not, that piece, I'm just going to let people know it's about more than just Bitcoin.

It's about global liquidity. So yes, there's more of a focus on Bitcoin, but it looks at other assets as well, which is really fascinating. They did some great work to show the kind of correlation between all different type of assets and global liquidity. And I thought they did a really good job. So I'll summarize that if we get to it today. That's fine. If not, we'll get to it following episode. My thoughts here is I tweeted it the day of the election. I said, word for word, the US election is just noise when it comes to Bitcoin. Record deficits will continue no matter who wins the election. And that's just reality. So I think in the long run, I just don't think it matters all that much. It kind of goes back to the liquidity a little bit

because the deficits in the end have to be monetized by the central banks who then have to essentially take the money printer out. That's the easiest way to summarize it without getting into too much of the plumbing here. But clearly, short term, it's been a big catalyst for Bitcoin and when I actually first did this segment I looked at the ETFs right the spot Bitcoin ETFs I was like oh they have about 75 billion on assets under management well I had to update those numbers this morning because they clearly were not accurate anymore when I looked it was earlier this morning might be a bit higher now, but the asset under management is actually $90 billion. It's approaching $90 billion, and that's in the span of a week. Of course, when you're looking at asset under management, we talked about BlackRock before.

You know, BlackRock's AUM will kind of shift with the market. So yes, it's a combination of inflows, but also the market value of the assets. So yes, the price of combination of inflows, but also the market value of the assets. So yes, the price of Bitcoin is definitely appreciated there. And one interesting tweet here that I'll share with that is from Eric Balchunas. He's a senior Bloomberg ETF analyst, very reputable in the sector. So he doesn't cover just Bitcoin, just to be clear. So this was a tweet from about a week ago. I said that I bid the BlackRock iShares spot Bitcoin ETF at its biggest trading volume of 4.1 billion a week ago. And for context, that's more volume than stocks like Berkshire, Netflix or Visa saw on that same day. And that's just that specific ETF?

That's just, yeah. It's not all of the ETFs. Yeah. It's just that ticker? Just iBit. Yeah. Oh my God. Yeah. And I looked this morning, I think yesterday at a jump to 4.53 billion for iBit alone. So within the span of a week, that actually eclipsed that volume and it's massive. And he's talking about big companies that are very liquid here. He's not talking about like tiny companies. So it's just interesting to see, especially with the ETF, it's opening the door to a lot more people. I think it took some time, but you know, it's really the 90 billion in terms of asset under management

is beyond the wildest predictions. Like most people were saying like 10 20 billion would be like quite good when you exclude the grayscale ETF because they already had some assets in there. But to be at that amount is just pretty phenomenal. Now, if we get back to Trump and the election, obviously, it's hard to not talk about Trump being elected because it has such, I think, has had a big impact on the price of Bitcoin. He spoke at the Bitcoin conference earlier this summer. I don't know. Were you aware of that? I watched it. Yeah. Yeah, I was. Yeah. So he was the first political, well, prominent candidate to speak at the conference or at least someone that actually had a chance to become president.

That matters because, first of all, he said he would fire Gary Gensler, who's the chair of the SEC, who has not been, it's not just a crypto space. I can say he's not been a very popular SEC commissioner. He's been incredibly hostile towards the crypto space like i can say like he's not been a very popular scc commissioner he's been incredibly hostile towards the crypto space i wouldn't say necessarily against bitcoin specifically but the broader crypto space definitely and the biggest issue here is that the industry has been asking for regulation like believe it or not and as much as some people are still very reluctant with Bitcoin and crypto, the industry was actually asking for regulation. That's because traditional financial regulation is very hard to apply to a lot of crypto companies. An easy example is, you know, the blockchain, in most cases,

all these cryptocurrencies are decentralized. So you kind of remove the middleman, right? Traditionally, there's always a central player. So when you do a transaction, it always grows through something central. And when you remove that, you know, it's difficult to apply the existing regulation, just to kind of try to simplify it as much as I can. Some, you know, may have thought that, you know, it was reasonable the way the SEC was doing it. But you had like company after company, including Coinbase, that said they are trying to register with the SEC. And they've been in talks for months and spent millions of dollars. And it always comes back to the same issues that they can't fulfill because it just doesn't apply to them. So what the SEC had been doing is basically bringing

them to court for failure to register. And what was happening is a lot of these companies that just didn't have a lot of financial resources would just settle with the SEC. And of course, it was discouraging investment in the space. There has been some companies like Coinbase that have pushed back. And when there has been pushback, typically the SEC has not done quite well. This was one of the reasons that the SEC had to approve the spot Bitcoin ETFs. It's because they were essentially sued by providers because they were allowing futures trading, but not the spot Bitcoin ETFs. And essentially it went to court and the court said, your arguments don't hold up if you're approving these futures ETF and not spot. And then the SEC essentially was forced to approve them.

Now, to get back around Bitcoin, obviously the other thing is Trump is also surrounding himself, his campaign with people that are clearly supporters of Bitcoin. Two that come to mind, I know you're familiar with them. There's Vivek Ravswami and his VP-elect JD Vance. So JD Vance, for example, he's shown his latest disclosure to have between $250,000 and half a million in Bitcoin. So clearly, and he's a venture capitalist too, JD Vance in the past. So he's a venture capitalist too, J.D. Vance in the past. So he's definitely someone that is, you know, I think open. I think it's safe to say.

And I've listened to him talk quite a bit. And I think he's quite open to technology and investments and making progress. Of course, you know, people will say, you know, Trump, you know, he, you know, like all politician, you know, he lies. And obviously, you know, show me a politician. I'll show you a liar. That's always my lines. That's kind of my view.

And I know it's kind of a bit cynical, but that's how I view things. But I think at the very least, from that standpoint, I think we can all agree that we'll have a less hostile administration in the US where the Biden administration was very, very hostile towards crypto. Not on like not quite sure why, to be honest. You know, they were always coming back to its use for by criminals and stuff like that. But when you actually look at the data, you know, what's really used by criminals is the US dollar. So it's yeah. used by criminals is the US dollar. So it's, yeah. 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 gonna 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, 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. Anyways, I have a few more things, but I know you want to chime in here, so I'll let you do that before I continue. I mean, statistically, it's been forced on politicians to become a political point, right? Security.org suggests that there could be up to 93 million people in the US that have

exposure to cryptocurrency. The US Federal Reserve in 2023 report indicated that only 7%. Other sources have... So basically, we've got estimates from 10 million to nearly 100 million from different sources yeah and it's impossible to know the truth is probably somewhere in the middle that's a significant amount of people and if you've met the bitcoin crowd which you have and yeah you know i'm looking i'm looking at one of them yeah and I've owned it for a long time now too, is this is a – some people are single policy voters around this kind of stuff. Yeah.

And so it's been forced upon them to at least say they're going to be friendly to it. That's the real difference is saying they're friendly to it versus not remains to be seen. But I think that the US has inherent motivation to continue to export the power of the US dollar. And so anything that disrupts that is counterintuitive to their main mission of remaining the de facto empire and the de facto currency used around the world for global commerce and so i i think that they look at it as a risk and even if the person that gets elected says they're going to be friendly to it man there's a there's a lot of three-letter agency soups out there that have different ideas.

So that's my comment on this. Yeah, yeah. I mean, and that's definitely a risk that people should factor in if they do want to start a Bitcoin position or if they already own Bitcoin. I mean, the counterfact to that is there's also the fact that I think it will become more and more attractive for foreign reserves. So countries that are looking to diversify away from the US dollar, you know, I'm not saying they're going to put everything like or like a lot of it into Bitcoin, like El Salvador, for example, but maybe they start adding a little bit to supplement their gold holdings because foreign central banks have actually been adding to that because, and I've said it time and time again, I've said it more than once on the podcast,

whatever is your view, you know, on the conflict between Ukraine and Russia and what should be done going forward, one of the dumbest things that the U.S. government could have done was to freeze Russian assets, U.S. dollar Russian asset, just because it kind of warned countries that like, okay, you may be friendly with the US now, but 5-10 years, the US could do the same thing to you if you're not on the same page. So I think that is something to keep in mind. But at the same time, I don't think the dollarization is coming anytime soon. There's too much US dollar debt around the world and countries and businesses need US dollars. So I think it's something that's probably more decades down the line. But the last thing I'll finish here is I tweeted something.

And clearly, whenever I tweet about Bitcoin, there's always some passionate people on both sides. It's a divisive topic. It has been for a long time. Yeah. And I just tweeted, I said, look, I still don't understand those who will not have any exposure to Bitcoin, regardless of the view on the asset, it's an asymmetrical bet. And what that means is asymmetrical bet is just the upside is far greater than the downside. And the example I said, OK, say you put 0.5 percent of your assets in it. What's the worst possible outcome? It goes to zero.

That is the worst outcome. Can't go negative. And the best possible outcome, it could double, triple, 10x, 100x, whatever it is. Right. So, you know, you can mitigate risk by allocation. And that's why I chose such a small allocation because, you know, for the most part, I mean, people have seen even the most conservative allocation, I can guarantee you that you've seen swings up, you know, more than 0.5% in any given year or even at any given month. And one person, I think it's embeds, I think, just the anti-Bitcoin crowd where they

just kind of just focus on the fact that they don't like it and they forget everything else and they're not open to it. Where, you know, I won't say the name. It's someone that follows me. So I'm assuming they probably listen to the podcast. I'm not quite sure. But it's amazing how the negative view will kind of blind them to just things like, you know, simple math. And the person responds as well. Keep making bets where investment can only go to zero at worst. And it's baffling because if you just take out Bitcoin out of the equation, I mean, it's just disregarding the math. Like it's just math. Like just forget it. Also, since when can equities not go to zero? Exactly's the other thing right and an extreme example everyone has owned everyone who's

been investing for a long time has had an equity face mega drawdowns a single position or companies going to zero yeah and and if you've been lucky enough not worse right yeah and i think it's an extreme example but say you have 100 of your portfolio in one single company and you have 0.5 in bitcoin it's less risky to have 0.5 in bitcoin i don't care what company it is the reality is if anything happens with that company you have all your eggs in that one basket and if anything happens with that company you have all your eggs in that one basket and if anything happens with bitcoin you have a tiny tiny fraction and if you tell me your portfolio can't recover from a 0.5 percent loss which by the way i don't think it's very likely that it goes to zero but i try to illustrate that so people understand the you know the volatility

and have the right mindset and don't panic. But to me, you know, if you can't understand that concept, I'll be very blunt. Like you should probably give your money to a professional to manage it because they'll probably do a better job if you cannot understand the risk and the weighting and the risk associated with that. Because, you know, at the end of the day even you know government bonds like governments have been known to default you know real returns of government bonds are likely to be in the negative in the next decade or so so sure you may see your nominal value there but you'll actually your real rate of return when factoring inflation will be lower so that's why i mean at the end of the day

i think when it comes to bitcoin i would recommend people to you know just do your homework read about it you know try to understand it what resonates the most with me may not resonate the most for you there's different reasons why people hold bitcoin the reason i hold it is because i think through you know governments will keep debasing money because ultimately you know governments can expand the money supply as much as they want. It's not backed by anything. You can say it's backed by the government, but the government can turn the faucet on as much as they want. There's no limit to what they can.

Of course, the more they do, the more there are consequences to doing so. I'm not saying there's no consequences. Backed by contracts with Lockheed Martin. Pretty much. But I mean, there's, you know, there's fiat all around the world. Right. And the piece that Lynn Alden did was so great because of that reason, because it looks at global M2. So it takes, I think, the M2 of the eight largest economies in the world, including the US, China, Canada is in there as well. But that's what resonates the most for me. For some other people, it might be the fact that if you have it, you own your cold storage, it's your own keys, it's not controlled by anyone else. I think that the fact that it can't be controlled might be the reason to own it,

especially if you're in a country that might have a lot of financial repression. That could be a very, very strong argument for it. But I think I would say, forget about the price, where it's at, and learn about it. I think if you start buying it just because number go up, if there's a significant drawdown, you'll probably sell at a loss. So I think it's really important to understand what it is and have a conviction in it. And if you're not quite sure then and you want exposure, then do a super small percentage that you're comfortable that it goes to zero. Again, I don't think it will go to zero, but with that mindset, you wouldn't panic if there's a big drawdown. Look, the train has left station with this thing, right? I still think that there's a lot of criticism that is valid around the asset and I get all of those things. I had the mindset, thankfully, luckily from hanging out with you and trying to read a couple books and understand and really the bed around, okay, tiny allocation, this is my chump insurance. This is my tiny allocation chump insurance.

And tiny allocation, not so tiny anymore. Yeah, exactly. I was going to say it's a material allocation now. Right. And I don't sell winners. So, this is kind of how portfolios construction happens over time for someone like me. But I look at like first money in for you, happens over time for someone like me. But I look at like first money in for you, 100X on first money in or close to 80X, 90X. I would say more like in the 20 range, but still, yeah. Yeah. No, I mean, it's on Canadian dollars, it was like three grand in 2017. Yeah. Yeah. I guess. Well, I started in, for the most part in 2018 but i did some very i guess so yeah so a year after but like yeah again it's we're talking about significant gains you should you should look it up i'd be curious i i think you're probably closer to 50x than 20x but anyways

i said back then look i don't have any hot takes I'm going to defer this to you but I'm not going to not pay attention anymore is what I was saying in 2019 I'm not going to not pay attention anymore because I don't get any value by by not paying attention to it there's no I don't it doesn't do anything for me by turning a blind eye to it and I I think that that's, you know, there's still lots to be done. There's still a lot of criticism around it. I've mentioned a few things. I think the utility still has a lot to prove, but not paying attention is crazy. Like it is crazy, I think, but you know, that's just our take.

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. 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. Let's just shift gears now to the question, are stocks overvalued, Simone? Maybe. Maybe, right? But what I wanted to do is because when people are talking about the index, But what I wanted to do is because when people are talking about the index, they forget that they're talking about 20 companies for the most part these days.

And I wanted to compare the top 20 US companies today versus 20 years ago. And I also have some data on the TSX and Canadian stocks as well that I'm happy to talk about. But the TSX today remains largely a better place for value, generally. Stocks are trading at cheaper multiples value-wise. You just have to make sure that you're looking at the right quality, matching companies with global opportunities to companies with global opportunities. They're not the same. And so I think you have to adjust your expectations there. But the data that's easy for me to gather, top 20, 20 years ago to the top 20 now. So I do not disagree that stock markets around the world are trading at rich valuations, I do not disagree that stock markets around the world are trading at rich valuations,

especially in the US. It would be a wild statement for me to say the market is screamingly cheap. We're closer to screamingly expensive than screamingly cheap. I think that that's without saying. It's not cheap. Agreed. And it's rich for anyone's blood. All of that is fine. Agreed. And it's rich for anyone's blood. All of that is fine. I hear returns are going to be bad from here because of earnings yields. I hear elevated PE of S&P stocks is elevated historically, therefore stocks will do bad. And all of that's fine, but it's ignoring a lot of data. Stock markets indices like the TSX-60, the S&P 500, Russell 2000, NASDAQ 100, they track a basket of companies. We cannot forget this. The NASDAQ 100 doesn't just randomly go up and down based on vibes or if the sun's going to come up tomorrow. It's a basket of 100 companies. So just like the performance of a portfolio of 10 stocks over the long run performs on the basket of those 10 stocks, indices are the same, right? And so it depends

on what we're looking at, but this is the same. So what are the good indicators of stocks going up or going down? Revenue growth and operating margins. Morgan Stanley's research on return decomposition is fantastic from Michael Mobison. And so to summarize my take on the research, revenue growth and operating margins are things that directly are affected by the decisions that the company makes, directly a decision of the management team skills, the business model and the market they're in. So Simon, you have up on the screen. I'm going to share this. This is the top 20 companies in 2005. Okay. I'm going to rattle them off. In number one, largest company in the world was Exxon Mobil. Number two, good old General Electric. You got Microsoft, Walmart, Johnson & Johnson, Pfizer, Bank of

America, AIG, IBM, Intel. Oh God, how things have changed. Berkshire Hathaway, Altria, which was merged with Philip Morris at the time, Procter & Gamble, JP Morgan, Chevron, Cisco, Coca-Cola, Wells Fargo, and Verizon. This looks a lot like the TSX, banks and energy and telcos. And Shopify. Yeah, yeah, yeah. And Shopify. Doesn't it look a lot like the TSX? Banks, energy, telcos, right? Yeah. It just kind of shows that there's been a lot less innovation in Canada,

unfortunately, than the US. Yeah, that's a good point. So here's the top 20 today. Okay, Simon. The interesting point here is that Microsoft, Exxon, Walmart, Berkshire, and JP Morgan are the five that remain in today's list. So that list is Apple, Nvidia, Microsoft, Google, Amazon, Saudi Aramco, Meta, Berkshire, TSMC, Eli Lilly, Broadcom, Tesla, Walmart, JP Morgan, Visa, Exxon, UnitedHealth, Novo Nordisk, the Danish company that makes Ozempic, Tencent, and Oracle. That's the top 20 today.

Before I continue, what are the screaming differences between the top 20 today and the top 20 20 years ago in 2005? I mean, it's definitely a lot more tech heavy. I think that's the biggest thing I can say. Uh, Microsoft, I mean, three, three good number three in both. Uh, that's kind of funny. And yeah, I would say of course, for those who think we're, you know, going away from oil, um, I think it just shows that they're still, they're not at the same positions, but there's still oil companies that are present in that time, 20 with Saudi Aramco and Exxon Mobil doing the top 20 and both going from number one to more at the back of the list, but still, yeah.

To give you an idea, it wasn't till 2003, so just a year and a half before this data that I'm talking about, that Mark Zuckerberg was messing around with Harvard data to make a hot or not website, which eventually turned into Facebook later in 2004. It was such a different world. The concept of computing platforms, cloud, the concept of people owning assets that touch billions of people per day was completely foreign. That didn't exist. That concept did not exist. And so that portfolio equal weighted roughly. I did this math on Finchette. They're very close to between 4.5% and 5.5% each. If this was one company, it would have operating margins of 32%, a dividend yield of 1.2%, trailing revenue compound annual growth rate of 16.34% over the last few years. Forward estimates are going to expect that these companies are expected to grow at over 14%. Trailing profit growth of nearly 25% and 25% net margins. Is that it?

Rattle that off. That is amazing business. That is amazing business. That is quite good. The yield is oddly close to the S&P 500. I don't know what the yield is currently, but that is very close to like the whole index. Because I guess that shows how much of an impact the top markets cap actually have. Correct. You just have higher margins, better network effects,

and more growth. Of course, they're coming at more expensive multiples. But this is the question I'm trying to answer in this segment is, is that worth it? And net margins for those companies in 2005 were well below that of the top 20 companies today. It makes sense, right?

We're talking about commodities, banks, telcos. They're lower growth, mostly domestic. Pharma. They're mostly domestic businesses. Not all. A lot of them have you know international presence but at the time we're talking about the companies that ruled america the companies we're talking about today are the companies that rule the world yeah it'll be really interesting to see how that

evolves right because obviously i think i'm not breaking it to everyone like trump is definitely more of a protectionist when it comes to that it'll be interesting what happens during his administration but it's probably gonna have ripple effects for you know several years after his administration it'll be interesting to see how that composition maybe it shifts back a bit more to America like I really don't know right the guess your guess is as good as mine but I find that very fascinating just to try and think how you know the tariffs obviously you know that's something that's in the news a whole lot how that might actually affect that composition and say five ten years from now

yeah well put and to ground out this segment it's very difficult to say, to point at a chart of historical PE multiples for the S&P 500 and draw a conclusion. Because that business that I just described, if we take the top 20 and equal weight them and assign them and look at the margins and the growth rate, it would be a company you would pay a higher multiple for than the ones 20 years ago.

You just would. The numbers are way better. And so I think that they're simply better businesses. And I'll round that out with what I just said, which is those companies ruled America. The companies now rule the world. Funny enough, it wasn't even until one year later that in 2006, when Amazon came out with aws began the new era of computing of cloud computing 2006 i mean it makes sense because i was listening um to a podcast with chris miller right who uh did the chip wars book and i think he did mention that that yes um has the it was kind of the start of the

shift to mobile and was still very focused on cpu but it was also the early let's just say early years of kind of cloud computing so that would make sense around that time yeah yeah it ushered in a completely different capabilities around data centers, cloud, and spun up out of nowhere, something that's doing run rate of nearly 110 billion a year now. So yes, the market's not cheap, but the basket of the market is made up of these companies that are touching billions of people per day how much scroll time is meta getting per day you know most of their users are daily active most i think two-thirds almost 75 i had to look of month of daily actives, sorry, of the monthly actives are daily actives. I believe that.

Yeah. That's insane. Right. That's unbelievable product market fit. So yeah, you have a followup here so we can keep this going. Well, yeah,

the, the segment that's like speaking of markets being overvalued and I posted a tweet. I think it's a good reminder that it was very simple. You don't have to be 100% in equities. You don't have to be 100% in cash. Don't have to be 100% in Bitcoin. Don't have to be 100% in gold.

Don't have to be 100% in bonds, or you don't have to be 100% in real estate. And I think especially right now with the valuations that we are seeing, and I will talk a little bit about the metrics. And just like you said, like it's very hard to say whether, you know, the valuations are a warning sign or not. Some of the largest companies are more profitable than ever with the amazing margins. But at the end of the day, I think you can kind of mitigate that risk by being exposed to different kind of assets.

And that's something I've changed over time. I used to be pretty much all in on equities with a little bit of Bitcoin exposure when, you know, when we first started doing this podcast, actually five years ago, pretty much to the day now. Wow. Yeah. Yeah. Believe it or not.

And that's something that over time I have tried to diversify my portfolio a little bit about like across different asset classes. And the reason I decided to pose that is because of course, Warren Buffett with Berkshire Hathaway, they recently came out with their earnings and I think you could have made headlines. I think they released it on a Saturday like they usually do just to, you know, keep it low key as as as he usually does. But their cash allocation and cash and cash equivalent, including Treasury bills, had ballooned to three hundred and twenty five billion dollars USD. Now, that alone doesn't really mean anything. And I think you have to compare it to their total assets to really get a sense how much cash they have on their balance sheet.

Can I jump in? Yeah. It actually does mean something. It's that they sold a lot of Apple. Well, I'm going to get to that. Yeah, yeah. Yeah, we'll get to that. Put the cart before the horse.

But I see a lot of people being like, ah, he's so scared out of equity. He's like, ah, he sold a lot of Apple. He has. And if you own a couple hundred billion in Apple, you're going to have a couple hundred billion in cash. Exactly. Because it's a direct correlation. And you can see, right?

So I have it from FinChat.io. This is on a quarterly basis, but I think it's actually better to look at it on an annual basis because you can really kind of see the increase in that cash pile. And you have to compare it here like it'll for those of you are just listening so basically you have two bars one that is their total cash and one that is total assets and you can really see just looking at it that there's a bigger and bigger proportion of it that is actually cash and to put a percentage to it i think think that will help. So right now it's a whopping 28% of their total assets.

That's up from 25% from the previous quarter. In the quarter before that, it was 17%. So yes, as you said, they have been selling Apple pretty aggressively because they basically, Berkshire this year has trimmed by about two-thirds the Apple. Yeah, there you go. So the Apple stake. I just pulled up the ownership history of Berkshire Hathaway and Apple. When they went real big into Apple, they increased their position from their portfolio of around 20% to nearly half of the portfolio in late 2020. And then it peaked

at around 51% in Q2 of 2023. And they've been selling quarter after quarter and still a massive position at 30% of their equity holdings. But no one's going to be surprised if they continue to sell that down to 10% to 20% or less. Yeah. And no one really knows, right? So Buffett doesn't really... Maybe he'll be asked a question at the next annual meeting. Who knows? I mean, it could be for a variety of reasons. We don't really know. It could be that he's building a cash reserve. It could be for tax reasons. It could be that he's building a cash reserve. It could be for tax reasons. It could be that he's finding markets generally overvalued.

He could be preparing to make a big acquisition. We don't know. It could be a combination of all three. But one thing that Buffett, and I think we've talked about it maybe once or twice, is a Buffett indicator, right? So you're comparing the total value of the U.S. stock market to the U.S. GDP. A very easy way to do it is just looking at the World Shire Index, World Shire 5000 Index. And for each point of the index, it's about a billion roughly in market cap. And right now using that, well, the total U.S. stock market is about $60 trillion compared to GDP around $30. It's actually a bit more than 60 trillion now.

And that indicator means that it's around 200%. And historically, whenever the indicator gets above 150%, it has been a sign that the markets are very richly valued. And that's because you compare it to the output of the economy. So you compare the total value of the stock market to the output of the economy. And typically, even like 100% means that the markets are, you know, getting on the higher valued side, but we're definitely on the far end of that. And Buffett has been very outspoken about that, that it is something that he keeps an eye on. So, you know, is it the reason he's selling? Maybe, maybe not. I mean, in the past when he's accumulated such large levels of cash, I mean, the last time was

in 2007. So I don't need to explain to people. But, you know, in case you don't know what happened 2008, 2009 was a great financial crisis. And Buffett and Berkshire were definitely able to deploy some capital, which ended up being very successful, you know, with hindsight, of course. So all that to say that I think it's important to staying diversified, whether, you know, we're looking at markets and, you know, things are getting frothy. I think my personal view is that they are, you know, things are definitely up there, whether, you know, it's the stock market, whether it's even Bitcoin. Right. We talked about that earlier. You know, I will. I've started kind of trimming back some position a little bit.

I've done that in the last couple of weeks. I've trimmed a little bit of my Bitcoin ETF holdings as well to build up a bit more cash in U.S. treasuries, which is mostly what Buffett does own. So when he has cash, it's U.S. treasuries, treasury bills, to be more precise. So short term that he can easily sell and deployed. But it kind of goes back to my tweet. And what I was saying is that, you know, I think it's clear that Buffett is selling into strength. I don't think anyone can, you know, debate that. Clearly, the market has been going up, at least for the Apple position. He's clearly selling into strength.

You know, there's nothing wrong with booking some profits. Again, I'm, you know, if you've been listening and you know me, like I'm not an all or nothing guy. So I think it's very fine, even if you still love the company. But I've been pretty outspoken about apple now for like probably two years where i still think it's very highly richly valued as profitable as it is for a company that is slow slowing growth and that is trading at those levels i do find it a bit of a head scratcher um i'll be very honest negative year year. They're in this like real tailspin because they made the iPhones too good and the replacement cycle lengthened too long. Now they're panicking to make worse phones.

And you know, remember right in the like 2000 and early 2010s, I don't know the exact dates of all their product releases, but it felt like every two, three years, they had like a new actually game-changing product. When's the last time you heard someone talk about the Vision Pro? Well, they scaled down, scaled back the production.

I guess it's not selling. Yeah. Yeah. I'm showing up on the screen here the trailing PE, price-to-earnings ratio for Apple. And I've statted out the minimum since 2016 and the medium. So it's currently at 37. It got as low as nine in 2016. So when Buffett made two huge allocations to Apple in 2016, when the PE was around 11, and again in Q420, when the PE was around 11. And again in Q4 20 when the PE was around 15, 16, 18 range.

So still mid teens. Yeah. Not at 36 times, right? Like I think there's so much context around the back the brinks truck up in the purchases he made which may go down as dollar for dollar the best investment of all time the allocation to apple it may yeah it may go down as the like in his 90s as the best investment of all time dollar for dollar not necessarily percentage but we're talking about moving hundreds of billions of dollars of capital in this yeah and especially when you consider that berkshire has to make massive bets to move the needle too yes right so he has to like with he

has limited options that's what i'm saying that will move the needle and to be able to do that at like the size that Berkshire was at the time as well is pretty impressive. But again, we don't know the reason. I suspect that it's he probably sees similar things that we're seeing. That would be my my guess. I could be completely wrong, but he's probably seeing that, you know, unfortunately, Apple, as sticky as it is, as great as a company it is, growth is slowing and the multiples are not reflecting that. I think you can make the case for some of the other big tech that, you know, yes, they're richly valued, but they're still growth there. Apple, I mean, like we've looked at it. I've looked at it like, you know, a few

weeks ago, like I know what the numbers are like literally it's not growing like it's that's what it is like they're buying back share it's great but at the end of the day like you can just buy back so many shares right like i guess ultimately the end game is you be you know you buy back all of them and you become private yeah like i mean yeah so that's kind of my thoughts on that so it's for me it's definitely when I see a lot of euphoria, like right now, I've learned over the years, I've learned from 2022. And the peaks of 2021 that I think it's probably a smart thing for I'm doing it for my own. And obviously, people can do it's not investment advice, they can do whatever they want with their portfolio. But I'm definitely gonna I

have started and I'm taking a little bit of profits off the table. You know, I'm not all or nothing, but I think there's nothing wrong with booking some profits. I just thought of a really good idea. Let me trademark this before the pod comes out. The FinChat Buffett indicator, which would use AI to detect every time there's chatter online about people saying that Warren Buffett is washed or that they are smarter than him is probably a good indicator of a lot of hot air in the system. That is something I saw a lot in 2021. You saw guys like Chamath go on and say he's the self-proclaimed next Buffett. Dump a ton of SPACs on retail and make out like a bandit.

Maybe that's the real Buffett indicator. Yeah. How many times people are patting themselves on the back saying that they're smarter than Buffett and or that he's washed up. It's typically a good time to just check, just a market pulse on the euphoria. And maybe just finish on this, but people will say, well, Buffett has never been into Bitcoin, for example, right? We talked about that, but to me- That poison square, it seems to be going up a lot. Well, that was Charlie. That was Charlie. That was Charlie.

That was Charlie. But I think it's just a reminder that you can build your own strategy and take, you know, wisdom from different great investors, whether, you know, they'd probably, you know, you don't follow exactly what they do. That's fine. But I mean, I still have learned so much from Warren Buffett. I have a different investing strategy than he does and that's fine, but I think it's just a good reminder that, you know, you don't have to follow any one person kind of move by move. You can, you know, take tidbits and build a strategy that works for you. Yeah. Just thought of like, I don't know if you ever played the sports video games back in the day when you could do a create a player and you could like pick like speed you had like a hundred you had a hundred points to spend it was like i want some level of speed some level of size strength explosiveness whatever it is like if it's hockey it it's like shot, stick handling. You have 100 points to spend on your player. Create a player. It's the same thing with kind of borrowing pieces of different, really successful investors that have come before us. Maybe I'm 40% Buffett, 40% Nick Sleep,

20% Chuck Ackrey. I feel like that's where i want to exist right and so you don't have to take every single thing as bible you take it you recognize it just like you know you and i do on this podcast you are the big bitcoin bull i should have been more listening even more but i took some pieces of that i'm like okay i'm not i'm not gonna ignore this anymore it's it's too crazy not to that would be an interesting segment to see like how we break down kind of how we view things uh for me there's definitely some buffett i would say ray dalio big influence yeah i would say the more i read about stuff is probably more that my bitcoin conviction is lynn alden lynn alden is just phenomenal she's great by the way yeah oh she's good like she's very like

i don't know she never gets over like she's if you want like someone that is steady and very kind of you know never gets um you know too far on one side and another just stays very objective and looks at all different asset classes, will do the work, doesn't have preconceived notions. I think she's fantastic for that. Yeah, shout out to her. I guess that's the pod. Thanks for listening, folks. Much appreciated. Jam-packed here.

Lots to discuss. We'll see what happens over the next few weeks. There's certainly a lot of excitement for the markets right now and what's going to happen over the next four years. I think that's clearly coming out in the price, it's a reminder that the long run matters more than the next three, six months, right? That's what this show's about. It's about the next three to six years, not the next three to six days. And I think that that's a key difference in your understanding. It's fun to keep up. It's fun to keep up. It's fun to keep up with the markets, fun to keep up what's going on, keep track of all that stuff. But you know what's even more fun to keep track of is like the actual fundamentals of the businesses you own. Because that's what's going to matter. That's what matters more than anything. So stay the course, folks. Anything else to add, Simon? I think that's a great way to end it.

We'll see you in a few days. You can check out our website, thecanadianinvestorpodcast.com. We got lots of links there. Other show, The Real Estate Show, our Patreon, FinChat, everything there, thecanadianinvestorpodcast.com. See you in a few days. Bye-bye. The Canadian Investor Podcast should not be construed as investment or financial advice. The host 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.