The Canadian Investor - Why Buy / Sell Ratings on Stocks Don’t Matter

Episode Date: March 13, 2023

In this episode, Braden starts by talking about the different types of luck based on a piece from the investing firm Andreessen Horowitz. We then answer a few listener questions including one on Analyst ratings and why they tend to be overly positive.  Symbols of stocks discussed: GOOG, DKNG, INTC, AQN.TO, CVNA, TTP.TO, ZCN.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 to Stratosphere for free 🚀 our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense. Register for ShakepaySee 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. How are we doing? Welcome into the show. My name is Brayden Dennis, as always joined by the very wise Simon Belanger. I am pumped for this episode. We have lots of good topics and some listener questions as well. It's

been a while since we did some listener questions. So, you know, what's on your mind is probably on the minds of many other listeners. And we will get to that. How are you doing, sir? What's going on? I fled the country again. Whoops. You came back with a week and then saw it was cold in canada and then okay i'm gone to the u.s in florida just enjoy the warm weather oh i'm such a baby now no you know what like i i'm such a fan of winter sports i i really do love it um but you know my folks are down here and so if i don't come down and visit them then i'll never see them and plus you know, my folks are down here. And so if I don't come down and visit them, then I'll never see them. And plus, you know what I like more than all of the winter sports? Hitting a golf ball around 18 holes. So we're like to do, relate it back to investing through analogies and how you can create your own luck. In 2007, Andreessen Horowitz wrote a piece called Luck and the Entrepreneur, the four types of luck they discussed and how it relates to entrepreneurship. Because

Andreessen Horowitz is a very, very well-known venture capital firm out of Silicon Valley, founded by Mark Andreessen and Ben Horowitz. So these are the two guys from Andreessen Horowitz. And they wrote this piece that I thought was particularly interesting. And I've been meaning to do this segment on the pod. So the four types of luck they describe are one, blind luck, two, motion, three, recognized good fortune, and number four, directed motion. So let's go through these and what they can mean for investors because you're

kind of abstract in the way that they're described here. So first, number one, blind luck. This is just completely random chance. Blind luck. You threw a dart at the board of stocks you could pick and the one you pick goes up. It's kind of like 2020. When the market found its bottom in June of 2020, it didn't matter what you bought. The junkier you bought, it went up. And so, investors thought they were really skilled, but they're probably just lucky. Would you agree with that? Most of that had very little skill and mostly pure luck is that yeah i think that's a fair assessment and especially for those who just started investing i think it it was a bad thing for them to be honest uh just thinking that they yeah yeah it's like

when you go to the casino and win on your first night at the casino. That's usually a bad experience for your future experience. Exactly, because you think you can replicate that. You become overconfident in your skills. And I think I've mentioned it before. Well, my first investment in stock when I was 18 went to zero. And it's one of the best things that's ever happened to me because I didn't make that mistake later on with larger sums of money. Yeah, exactly. Yeah, exactly. And so, really short-term stock picking, you know, just trying to see if a stock will go up in the next six minutes is purely blind luck and has

nothing to do with skill. And so so blind luck, the first type of luck in this piece called Luck and the Entrepreneur is right place, right time without any pre-existing effort to make sure you set up yourself for success. So that's number one. Number two is called motion. All right. And so quote here, a certain basic level of action stirs up the pot, brings in random ideas that will collide and stick together in fresh combinations. Let's chance operate. So, you're putting more pieces in there to collide and letting chance do its thing, letting luck come about. This is bringing you luck based on pure activity level. And so you're actively trying to have more chances of colliding with luck. You're putting yourself in a situation for luck to strike. Let's say now you're spinning that same wheel of stocks, but instead of just a random list of stocks, maybe you've put together a list of research stocks.

You're putting in a base level of effort to win. But the motion is still random. And therefore, a lot of luck is still involved but at least you're putting the you're putting to quote injuries north fresh combinations and letting chance operate um any thoughts no i just kind of thinking from a dating perspective right uh no but it's a good to me like it's also a good way to put it. Really good one. You know, if you never put yourself out there, if you're single, you're trying to meet someone. If you go, you know, you go out and do stuff, you go on dating applications, like you're putting yourself out there.

You may still not find the right person, but you have better chances of finding the right person than doing absolutely nothing and complaining that you're not finding the right person. Dude, that was so good. Yes, totally. Dating is a perfect application of this, right? Like you need to have some base level of motion to achieve any sort of result instead of just going, wow, I got the same result as I have previously, whether it's your portfolio or dating. If you're not putting out any motion, you are relying purely on luck number one, which is blind luck. And you can't influence that at all. All right. Number three is called recognizing good fortune.

This one is about having a unique and differing perspective. It's you recognize you are the one to take advantage of this opportunity. You recognize good fortune as it comes across your plate. Luck has given you the opportunity, but your preparation has given you the ability to act on it when others cannot. They don't have your unique perspective. So they don't even realize it's a good idea or a good opportunity when luck presents itself to them. Here's just a random example I'm coming across. The year is 2006. You are a retail floor

worker at Lululemon. You realize this company's operating on just a different level. The demand from customers is relentless and everywhere in the mall is dead, but not here at Lululemon. It's a slow day at the mall. There's no one at Nordstrom. But here at Lululemon, things are buzzing. And the stock now has IPO'd. And it's getting smoked post-IPO because they virtually IPO'd right into the great financial crisis. The Lululemon stock loses 75% of its value from IPO to trough. Your store alone during that time, Simon, you're just a floor worker, has tripled since then in just the same store. Your manager comes out and says, great work, everyone. The past year, sales have tripled and we're doing fantastic. Great job, everyone. You know, the past year, sales have tripled and we're doing fantastic.

Great job, everyone. Here's a slice of pizza, you know. Here's your slice of pizza. You buy Lululemon stock because you have a unique perspective, which is differing from the grain of Wall Street. And you go on to make 75 times your money if you still hold it. This is recognizing good fortune. Luck presented itself, and you had a differing opinion and perspective than the grain.

Yeah, and that's probably the hardest thing to do in investing because you're going against the consensus, the talking heads, whatever it is. And because you're seeing, you're analyzing, you're taking a different approach, you're seeing something that they're not seeing, you're just taking a different angle and you put your money where you think it's right to put it. But it's, you know, it's not easy to do because you have to make sure you're right, because if you're not, then clearly then clearly you know it's it can be hard because you can say well i should have listened you know to the consensus so it's definitely something that's not easy to do uh but it also presents like that's usually where you'll

make most of the money is when you invest in things that the market's not really seeing the true value or maybe down for whatever reason on it. Exactly. And that's the main point, right? And don't hear what I'm not saying. Don't purely make investment decisions based on anecdotal experiences. That is a terrible way to go. And so don't take my analogy out of context here. But the important part is you had a differing perspective and the talking heads during the great financial crisis said, sell, sell, sell, sell, sell, right? The world is ending. The banks are collapsing. Sell, sell, sell, sell, sell. It was their favorite

word in that period. So that's number three, recognizing good fortune. that's number three, recognizing good fortune. 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. Calling all DIY do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're

building. And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, Blossom the app store, and I'll see you there.

Last on the list, number four, directed motion. All right. Now the previous types of luck are fairly random in terms of them presenting themselves to you. The first one is just blind luck. The second one is, you know, at least put in some base effort for luck colliding with you. And the third is luck presenting itself and you have a unique perspective on how to take advantage of it. But number four is directed motion in encountering good fortune. And now motion is not random. You have put yourself in a position to collide with luck more frequently because you know. It's like skating to where the puck is going. Like, oh, Wayne Gretzky seems to be super lucky that the puck keeps showing up on his stick. No, he had directed motion. He's creating his own

luck. This is where opportunities begin to present themselves directly because of the effort being done or the decisions made on where to go. Some ideas here for portfolio management. Think creating a proper investment checklist. Think creating a proper idea generation framework. Think listening to this podcast, duh, and think using the right tools and tech to analyze stocks and stay on top of your portfolio. Another shameless plug here, stratosphere.out. That was two in one sentence. There's a great reason investors have checklist frameworks and tools to manage their investing style, because they are prepared and directing motion towards encountering more good fortune than the average person. Another way this relates to investing

is the longer your time horizon, the more sophisticated skills you gain, and the more all of a sudden you seem to run into that luck thing. And the more portfolio decomposition comes from actual directed motion than just- Yeah. And I'm not surprised that Anderson Horowitz would have written this because when you think about especially venture capital investing, you know, it's very rarely something that they'll be able to exit within six months or a year, right? They're usually much longer timeframes in terms. It's usually seven year capital at the minimum. Exactly. And if you're investing in the public markets, you can also have a similar

approach. And that's what we tend to do. You and I, is we have a longer term approach because we find that it creates some opportunities. The market is forward looking, obviously, but the market tends to look out a year, year and a half. I mean, we're seeing it with, you know, I think we've talked about a lot macro in the past couple of years, but I think it's a perfect example, right? You'll see the market kind of project one year out where interest rates will be. And then they kind of forget beyond that. I'm not talking about bond markets, like more the stock market. You see them project and then it's kind of like they have blinders and they can't see beyond that. And that goes for a lot of companies.

And in the previous episode, I talked about retail issuing some not great guidance for 2023. And one thing I did mention is it could present some interesting opportunities. Obviously, if you do your research, if you're looking at a longer time frame, like I own Home Depot, they issued pretty weak guidance for 2023. I think Home Depot is going to be a great business for years to come. Yes, there's some headwinds in the near term, but I think personally it could represent some pretty good buying opportunities if markets really putting a discount on that business short term. Yeah, right. really putting a discount on that business short term.

Yeah, right? Like year and a half is like – it seems generous towards – dude, there was a hilarious earnings call. Oh, I'm forgetting what I was listening to. It was a hilarious earnings call I was listening to. Oh, I got to find it. It was pointed out by Alex Morris on Twitter and so I tuned in to check it out, this company. Anyways, the long and short of it is the analyst asked a question about what next quarter is going to look like. And the management team is like, it's hard to really know right now but long term x y and z and the and the

analyst replied my models don't care about that far out it's like dude you're such a like you're such a little kid who only thinks about their like no one cares about your spreadsheets dude like get over it and the reality is is that analyst estimates are probably only looking that far out with completeness. And that's the mandate. And public markets have to, and the participants in public markets have the incentive structure structured towards them to not think long-term because your client's knocking on the door. Incentive structures are quarter to quarter. I got to make sure my clients don't leave me in the next month, so I got to act short-term. The incentive structures are not always lined up for

long-term opportunities. And with that, you are going down the scale of blind luck, not directed motion. And if you can situate your portfolio more and more towards recognizing good fortune and directed motion, then base motion and blind luck, I think you'll do quite well. No, that's well put and and honestly this kind of it's a good segment or a good leeway into one of the listener questions we got so from nils who taught i was asking a question about analysts um so his question was i'd love to hear you guys do a segment on modeling what would happen if you follow consensus analyst ratings free freely available on a basket of stocks and thanks for all the great work you do so it's an interesting question in terms of modeling i mean it can be quite consuming and my take on analysts as you'll see is uh you know i i take it

with a grain of salt for the most part. So first, analysts are notoriously biased and positive in their ratings. I mean, this, if you follow, if you've been investing for some time and you see these analysts' ratings, they tend to not be very negative when they clearly should be sometimes. It's just kind of funny to see it. I'm not saying that all of them are, but a lot of them are. That's because if they are too negative and their relationship with a company sours, it can impact the access that they have with company executives. And if you think about it, a company will be much more willing to give an analyst time with an executive if the analyst has typically been really positive or on good terms with the

company and vice versa. So especially since publicly listed companies can get hundreds, if not thousands for the larger ones of requests each year from analysts to attend events or have interview with executives. So the companies have to pick if your company, you know, are you going to pick the one that put a sell rating on your stock? Are you going to invite the one that put a neutral or buy rating on your stock? So, you know, the incentives are a bit, you know, you have to keep that in mind. I think where there is more value from analysts is what they actually say about the company. Oftentimes, they'll actually provide some good insights but the actual ratings um i think you know i'll stay nice but i think they're you know a lot of them are just out to lunch i don't know before i continue any thoughts on that yeah i think that that's good i mean we don't mean to like sound like we're we're calling the analyst community useless. I just think that the buy and sell ratings are basically useless. They're a joke sometimes.

Yes. It's the value of their insights on what the bull case and the bear case is, usually laid out right at the top, what they think is coming down the pipeline, some interested one-off items that are in there. They'll kind of like point that out and spell that out. They understand the business extremely well. The analysts in the community are such useful pieces of this game. So useful. But the question of ratings i think uh should be taken with a grain of salt um i just grabbed some data from cnbc and it says that only about five percent of of ratings are sellers oh yeah and i'll give some examples too. Five percent. Yes. So, if the market is the market, that must make that a certain amount

of companies are buyers and certain amount of companies are sellers. And certainly, more than 5% of companies are going to underperform the market. So extrapolate that with what you know. Exactly. And there's also potential incentive for analysts to be positive or negative about the stock. So a buy side analyst, which means an analyst that works for an institution or mutual fund, for example, may issue a buy rating for a company that's already held by the fund or institution or a sale rating if they sold it recently so there there is like you know some kind of weird incentives here i know there's been more regulations in the u.s uh towards that in the past i think decade or

so i think it was following the financial crisis now a sell side analyst on the other hand will typically sell the research to buy side groups and oftentimes cover a group of stocks, industries or sector. It's often in their best interest to be on good terms with the companies they cover. Kind of going back to what I said. And the last thing I'll say before I give some examples here of like kind of head scratching kind of analyst rating is that, you know, I listen to conference calls a whole lot and a lot of analysts will ask some really good and sometimes hard questions to the management group. So like you said, I'm not trying to say that they're not good or anything like that. Some are just absolutely amazing. It's just a whole rating thing, especially for beginning investor, I think it's really misleading. And

a lot of people will rely on that when they really shouldn't, instead of actually reading the analyst overview of the business or projections or whatever it is. Now, I took some, I think it's five or six example here. So the first one is Google or Alphabet. I thought it was interesting because all the chatter about ChatGPT and, you know, the potential disruption. So I took just two sites that kind of amalgamated the buy and sell ratings. And, you know, there was no sell ratings for Alphabet, which, you know, I agree. I wouldn't sell it. I own it. But at the same time i'm surprised to

not see one when there's potential disruptions for alphabet yeah because who's going to be the analyst that marks one of the greatest businesses ever as a cell there's no chance you put your neck on the line you know you don't get a promotion from getting it right exactly and you can get only downside career risk for marking alphabet as a cell because you'd be the only one and there's no upside for you in your career by doing that follow the incentives yeah exactly and we saw right if you're just looking at a big short or you know the 2008 financial crisis there were people that were sounding the alarm before it happened and even some banks and financial institution the u.s specifically being exposed and for the most part they were laughed out of the room yeah so that's a good example even i'm not surprised

to see a big tech name like this to be so high consensus uh consensus by because they're they're incredible companies but uh some of these next ones. Yeah. So DraftKings, it's one that we've talked about on earnings. And it's just a market that's really difficult to profitability and acquiring customers. The cost is really high. And the customer loyalty, I mean, it's not that hard to create an account. So i did it for the super bowl i use i think bets 360 i got uh you know i won my bets and then i also got an extra like 300 bucks for future betting so it's kind of nice but it just gives you like yeah that cost of acquisition yeah i don't think they'll make much money with me but draft kings so out of 23 analyst rating on one side there was only three strong sell the other ones were

holds moderate or strong buy and then another side out of 33 there was no sell but the underperform which i always find a bit funny which i guess is kind of a sell if you look at it's a soft way of saying it so there were some underperform but it's always funny it it, it's a soft way of saying it. So, there were some underperformed, but it's always funny. It's like, it's basically sell it or, yeah, it's sell it. But if I'm wrong, it's okay. No, exactly. One that I think you'll kind of get a kick out of is Intel. So, one side had 27 analysts rating.

Only six had either a moderate sell or a strong sell. The rest, it was a majority hold or a couple were also buy. The other side, very similar. There was, I think only one selling it was sell. About a third selling underperformed and more than half saying buy or strong buy, which makes me think either they want to stay on good terms with Intel or they have no idea in terms of what kind of trouble Intel might be in. What's your take on that one? I read this as hold equals sell.

Yeah, pretty much. Yeah. Which it really... That's how I've always read analyst ratings is buy, buy, strong buy equals buy, buy equals hold and hold equals sell. would know if you're starting to invest you'd say oh you know like i'm seeing intel i don't know too much about the business but i'm familiar with the processors i have it in my laptop whatever it is um you know it's been a like since i can remember it's been there like it pays a dividend why not right the analysts seem to be you know saying it's okay so that's what i really don't like about you interpret it as like hold this juicy dividend for a while.

It won't get cut. Don't worry. Yeah. That's like how I would read it for Intel. And obviously, that was a bad idea. No, exactly. I had Algonquin on here. Kind of similar story.

There's a couple, just one strong sell out of nine on one site. And then the rest is all hold or buys. And then the other side is mostly hold and some buys. Algonquin is facing some issues. We talked about it. They cut their dividend. I mean, from my perspective, there's some really serious questions about having just the right management in place with some of the moves and you know they've kind of created this problem

and now they're expected to you know going forward rectify everything so that one a little bit of a head scratcher but again I think if you look at it from a hold perspective then it's probably telling you to sell it so that's a majority of it and the the last one, that one is really, I mean, I guess you have to look at it against from the whole perspective, but Carvana. So we talked about Carvana, which is essentially on the brink of bankruptcy or needing financing one way or another. And on one side, 23 analysts, there was 19 holds, two strong sells, two strong buys. 19 holds, two strong sells, two strong buys. On the other side, there was 14, which was evenly split between strong buy, which I do not understand, buy and hold. So, that just tells you, I don't know. Like this one is really the one that I really don't get, to be honest. Yeah. This is where it all kind of falls apart, right? Because some of these might be outdated and they're still being aggregated.

And so a lot of these sites don't show that. What I will say, quick, easy plug, is we do aggregate this stuff on Stratosphere, but we show it by date, which investment bank and which analyst as well, like their name, when they issued it and their estimates for top line revenue EBITDA and earnings per share. So that's a little bit more easy to extrapolate because there's a lot more holes recently. Yeah. There are a lot more sales recently. And so be careful with these aggregated pie chart type type uh type metrics i mean yeah that company clearly is just probably not going to exist in the

future and so holding on to it's probably not smart yeah and the reason i use this is because i wanted to aggregate it in an easy way right to do a sum up so that was well that's how they show them on 95 exactly and that's and I think my biggest gripe I think I've said it more than once but I'm just thinking about someone who's getting started and they see this and how misleading it can be and that's the biggest thing that really irks me because you and I and most of our listeners probably you know they would see that and you know not bat an eye too much or not think too much about it. But someone who's just starting, I think it can really point them into the wrong direction because they might see Carvana and think, oh, you know, that looks like a good value play.

They're being, you know, pretty, you know, it's a disruptor in the space and all that stuff without actually digging into it. Well, it's like, you know, I'm holding on to this. It reaffirms bias for a lot of people too. It's like, I'm holding on to this dog of a stock. I probably want to sell it. The business is deteriorating. But, you know, nine out of 10 analysts are marking it as a hold. One of them is marking it as a sell.

It's like, well, 90% of them think I should hold it. And I think I should hold it. And I think I should hold it. I don't, you know, biases are kicking in, the reaffirming of the biases. And so, yeah, don't put too much weight on. This is a good segment because I think everyone has struggled with this the first time they open up a brokerage account. Yeah, exactly. So, anyway, sorry if I didn't fully answer your question. I took a different angle, but it's not really something we've talked about and I thought would bring value to people. Totally. 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. Calling all DIY, do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building and people share their portfolios, their trades or investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends. and there's other stuff like learning Duolingo style education lessons that are completely free.

You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, blossom social in the app store and I'll see you there. Another one I think will bring a lot of value to people is question from literally everyone ever on our emails. How many stocks should you own? You know, I can just kind of wing this. stock should you own? I can just kind of wing this. I'll say now, for me, the answer is 15 plus or minus a few. And I've actually just very recently, and you'll notice on jointtci.com where both of us every single month start to disclose our portfolios. And for the first time ever in

the March update, you can go check it out, jointtci.com. It's $9 a month is I actually have a list of every company in the percentage own and another table of this, like, this is how I think about my portfolio because I consider constellation and the spinoffs as one one position you know uh topic is constellation and the newly uh march 26 or whatever when lumine group comes into my brokerage account i i'm not like oh shoot now i'm at 22 holdings you know like that's not the way i'm thinking about it and so i've started including that on my joint tci.com updates. So the number, if you break it down, like Visa and MasterCard, I think as a 10% position combined, it's the same exact investment thesis, a duopoly on the best business model ever.

And so I get down to about 15 investment ideas. Some people are cool with less than 10 with a highly concentrated portfolio. You just got to know yourself. This is really personal. You got to know those businesses have high conviction in them. I don't have a particularly hard stance on anything less than 20. I think that that is your opinion, what you're comfortable with, what you're willing to own. I do think when we're getting into the 30, 35 plus individual company names, at that point, if you're a self-directed investor, I do have a hot take that you should probably just go buy an index fund and hang out on a a beach not spend another waking minute on it because you're going to get similar to index type returns with a lot of work and and mental brain power

that's that's my take basically yeah i tried to stay around 15 it's more for just time management um i think for the most part that's a number i'm comfortable with with keeping up in terms of businesses because more than that i just find you know if there's a small position because i tend you know it's easy to lose track of it like not lose track but you kind of you know it's not a big thing so it's easy to just kind of forget a little bit um i think i'm like you when it gets too high just becomes really it's harder to keep stay on top of all of them. I don't know what number might be too high. Maybe it's more 50, 40, 50 in terms of maybe you should just own an index. But again, if you get, I think below 10,

which is fine. But I think personally, if I ever get below 10, or is fine, but I think personally if I ever get below 10 or even 5, definitely I would make sure that a good chunk of my portfolio is toward index funds to kind of balance that out. Because then it becomes really concentrated. And if your thesis on one of the names, let's say you have 10 names and just for simplicity it's equally weighted. I mean, one name performing really badly could have a pretty serious impact on your portfolio, even more, obviously, if you have five. So I've said it before, I love having a mixture of index funds and stocks. And it really depends. I mean, we've talked about it a little bit before, but I think, you know, make sure you track your returns. If you're not beating the market and you're only picking stocks after, you know, five

plus years, maybe you'll you may want to invest with an index fund instead, unless you really enjoy it and you're fine with underperforming. But, you know, it does take some time and, you know, just be true to yourself as well. So, yeah, if whatever works for you, but yeah, index funds are a great way to diversifying. And I think there's nothing wrong with having, you know, one way or the other or hybrid approach like I do it. Today, I'm at 17. If you group together, like in this new table that I use, like how I really think about my portfolio, which groups the Const the constellation spinoffs and it groups the Brookfield names.

Yeah. Because, you know, those, those asset management spinoff shares came into my brokerage and I sure as heck ain't selling them. But it's not like, Oh, now it's another name. I got to worry about. It's really, that's not how I'm thinking about it. Okay. On to uh do we got another listener question yeah i think it's the last one and then you know wrapping it up it's our third recording of the day so i will try to you know try not to babble too much as we answer this one uh but you know it's been fun so question from drew here i am 33 and i'm all about dividends i ventured off into companies

that were purely performance and never did well i'm gonna assume he's talking a bit more about growth stocks there uh but i'm i'm not quite sure so i'm in this for the long term and it's been working i think how i'm reading it is that he he was drew right yeah buying stocks uh purely off performance basically like saying like trying to chase returns like oh this thing was up 50 i'm gonna you know in this last month i'm gonna hop in that's how i'm reading it but i don't know yeah i'm not sure but anyways uh so um so he's investing long term it's been all we know is it didn't work. It didn't work out well. So what are your thoughts on TTP? Should I sell ZCN? So these are both ETFs and switch it all to TTP.

Don't need similar stocks. And my two ETFs is my logic. Or do I entertain a Vein Gara S&P 500? So obviously, you know, I'll give my thoughts. This is not investment advice. This is just kind of the things that, you know, I'll give my thoughts. This is not investment advice. This is just kind of the things that, you know, I'd be thinking about. And I'll just put it, you know, you may want to look into this type of deal. Now, first, obviously, you know, looking at just working off performance, I mean, past performance doesn't necessarily mean future performance, whether you're looking at more steady compounders or grow companies.

Like the past can give you some insights, but you have to keep in mind that, you know, it doesn't mean that it's going to happen in the future. And we talked about the historical returns of the S&P 500, and it's been, what, around 9%, 10% per year historically. You know, there's no guarantee it's going to continue like that for the next 20 years. So it is one point of data that you can use, but that's always something to remember is that, you know, what happened in the past, there's no guarantee it will happen in the future. And I think another thing that we touched about in terms of our allocation, the previous segment that you did, is if you do invest in things that are a bit riskier, one of the greatest tools that you have as a self-directed investor is to allocate accordingly. So you could decide to just take shots at companies that are a bit riskier, but just putting a smaller percentage.

So that way, if it doesn't work out the way that you wanted, it doesn't hurt your portfolio as much. So it could be, you know, you want to take a shot at a company that you think is a bit riskier. You put one, two percent, whatever you feel comfortable with, knowing that if it doesn't go as planned, it's not too bad. And if it goes well, then it could actually still have a meaningful impact on your portfolio. Anything to add there before I go on? No, no. With these ETFs, I mean, we see some of these questions so frequently and they keep coming up. And my hot take here is don't overthink these things too much. And they're simple instruments for a reason.

So keep it that way. Yeah. And so you mentioned you're 33 and all about dividends. That's fine. But you also have to realize that focusing only on dividend stocks could make you underperform the overall market. I say could because it may also not be the case if sometimes those stocks will perform the best, especially if there is a bear market because the total returns are actually being boosted and they're more stable companies. But higher yielding companies will usually be

more mature businesses. The good ones will be all... Or ones in trouble. It depends on how high yield we're talking here. Well, yeah. Well, that's my next point here. So the good ones will be all. Or ones in trouble. Like it depends on how high yield. Well, yeah. Well, that's my next point here. So the good ones that are higher yielding will be concentrated in specific sectors. So you won't have access to tech, for example, because if you go to a high yield tech name, you're going to get the dividend cut like Intel did about a few weeks ago. So that's just something to keep in mind. But the good ones will be in like banking, insurance, energy, utilities, telecoms, real estate.

Those are kind of the maybe pharma, some of them. But even then, it's usually a bit lower. So you're not really giving yourself a whole lot of diversification with sectors. So something to keep in mind. And if you don't do sufficient due diligence, you could end up investing in a company that offer high yield because like you said, they are in trouble, which are also known as dividend traps.

So like I said, think Intel, Algonquin. Those are two names that recently cut their dividends. I mean, Intel was yielding what, 5%, I think, before they cut it or something like that. I think around there i think which i mean high single digits i don't think i think it was about mid yeah i think yeah i don't think it was that high six at least six yeah i think i mean it was here they cut 60 i think now it's like one and a half, 2% that it's yielding. Anyways. Whatever it is, it was high. If you see anything above 3% for tech play, there's definitely some questions to be asked.

We looked, we just did a recording with Dave from the Investing for Beginners, and he talked about Texas Instrument, which is a really solid company. the investing for beginners and he talked about texas instrument which is a really solid company very mature but has done a great job with free cash over time smart investments uh pretty sustainable business i think they they yield a pretty high yield at close to three percent and that's and that's more like an industrial's name. Yeah, exactly. Like it could, exactly. You can make the case. But again, anything like above 3% for more tech, I would say be careful. But having said that. At least just investigate.

That's it. That's it. And there is also an argument to be made in dividend stocks, even if you underperform the market. And I've talked about that, but it's been a while. So it might be a good idea for people that could get nervous if there's a correction. So the case here is, if, you know, I know there's people like that, that, you know, they'll own stocks, and then there's a big correction, and they panic, and they sell a whole lot of their portfolio.

Well, sometimes for those people having a dividend heavy portfolio, obviously good dividend companies, just having that dividend income coming in will prevent them from making a rash decision. And they may not outperform the market, but the fact that the dividend is there can actually prevent them from making a big mistake and selling when the market is really depressed. So I think, you know, there's a case to be made there. What are your thoughts on that? I've talked about that before. I mean, I wouldn't do that myself, but I know for some, it's actually something that they might want to consider because they could panic sell if there's a downturn. Yeah. I mean, this discussion is always nuanced, but what I will say with a stance I will be firm on is, and I'm going to ruffle some feathers,

like for sure, especially dividend investors. They're so down the rabbit hole of, I only buy stocks to pay dividends. I used to be there. I used to be this. I think it comes with experience and understanding capital allocation better as an investor. You realize that it is just one decision to return cash to shareholders and it should not be the only decision. Let me help you. Let me help you. I'm a business owner. So say you're a business owner, okay? Some of you may be, some of you may not be, but regardless, say you own the hot dog stand down the street and you have a bunch of money left at the end of the quarter and you got to figure out what to do. There is so many growth opportunities for your hot dog stand. You can buy Joe's down the

street. The guys over down at the Rogers Center are raking. And you think about maybe even acquiring them or starting a new stand in one of those high traffic areas. That's going to require capital. And if you are the owner of that business or a shareholder in that business, the right decision may not be to use money to those hot dog stands, open up a new hot dog stand, or buy back equity in your own business because it's discounted. I've just opened so many different capital allocation decisions for the hot dog stand owner that do not involve giving money back to Joe down the street that gave him the initial $1,000 to start the first hot dog stand that owns shares in the company, that initial investor might not want dividends because they realize there's a huge opportunity still for the hot dog stands. This is no different.

Don't complicate it. It is not magic money that flows from their account to your account. The actual intrinsic value, the enterprise value of the business goes down when there's cash distributions. It's not magic. It is just a decision of capital allocation. So once you kind of get that through your head, you can save yourself underperformance. You said you're 33 and you're all about dividends. Hey, maybe don't be. Maybe don't be all about dividends and open your eyes to the decisions that can be done with money outside of distributing a pack to shareholders. I know I just ruffled so many feathers, especially the dividend insane people here in Canada. Y'all are insane and stay out of my DMs. So it's at Brito Capital if you want to let us know how you feel on Twitter. No, no. Obviously, you know my portfolio. So I do own a fair amount of dividend payers but it's not only what I own

I still stand by what I said in terms of temperament the reality is I know you explained it really clearly but for some people it gets emotional and I you know I've heard it before where they'll see you know they buy high and they sell low because they panic and that dividend can prevent them from doing that. Exactly. I think it just comes more to knowing yourself. If you think you might be, you know, have the proficiency of doing that, then maybe there's a good chance you might underperform the market because you're too focused on dividend in nature. Like you said, there's other things that companies can do with the capital, including buybacks. I think that's one you didn't mention as well. Yeah. Now, don't hear what I'm not saying here because you can be trying to optimize your portfolio for income. And then in that case, you're probably going to want to own a basket like you have on the Patreon page where you talk about your parents' model portfolio and what you would do if you were in their situation. That's an entirely different nuanced discussion. And that's why this stuff is always nuanced. But you said you're 33. So you're just a young chap. You focus on total return, not just dividends. And none of this is investment advice. Always make your own decision.

If you're... I invest in stocks that pay dividends. Warren Buffett loves dividend paying stocks. But you know what he doesn't do with Berkshire Hathaway? Pay a dividend. He will not do it because he knows that he can reinvest his shareholders' money at higher compound returns than they can. That's why you're giving your capital to Warren Buffett is that he doesn't distribute it back to you. That being said, he owns tons of dividend pairs. He talks about it. The latest shareholder letter he opened with, it sure does feel nice to receive a couple billion dollars in cash from Coca-Cola and American Express. Thank you very much. Check, please. So don't hear what I'm not saying. Yeah. And now to just finish on the question here. So

you asked about VCN versus TTP. So I looked at both of them. They look very similar in terms of holdings. So they kind of track the Canadian market. They follow different indices, but they're very, very similar. I mean, it's hard to be that much different when you kind of track the Canadian stock market because there's just not that many names. The question you'll have to ask yourself is what percentage of your portfolio you want to allocate to Canadian stocks because, you know, here are some things to consider. Like both ETFs have the same fees at 0.05%. Both have large allocation to financials, 30% plus, and energy, 17% plus. They provide a lot of exposure to the Canadian

economy as a whole. Yes, some of the companies are, you know, diversified internationally, but there's a lot of banks in there. And, you know, even the most, you know, RBC still has gets a lot of their revenues in Canada. So that's something to keep in mind whether you should diversify in an S&P 500 ETF, I mean, it really depends with, you know, do you want to diversify outside of Canada and having some exposure to the U.S. stock market and global stock market? Because there's a lot more global businesses that are listed on the S&P 500 compared to Canada. And there's other types of ETFs too, right? You can go to emerging markets. You can go to more mature developed markets that are outside the US and Canada. There's a lot of different things you can do.

But, you know, it's up to you for VCN and TTP, but they're almost identical. So, I mean, there's nothing wrong. I guess they're the same fees. But yeah, that's kind of my take on that. wrong i guess they're the same fees uh but yeah that's kind of my take on that the things i would consider if i'm looking to diversify outside of a certain etf that i own you know it sounds like you own a decent chunk in those etfs keep it simple and keep the fees low um beyond that it's splitting hairs a bit usually yeah Usually. Thanks for listening to the pod, everyone. Appreciate everyone's support.

I think that was a good one. Listen to our questions. Sometimes we get fiery a little bit. I hope everyone liked the luck segment. I've been scheming that one for a little bit. And the piece you can read from Andrews and Horowitz is called Luck and the Entrepreneur. Of course, their view is on venture capital and how it relates to entrepreneurship and how founders

can put themselves into recognizing good fortune and directed motion versus just blind luck. The Airbnb guys, they put themselves in a position to receive lots of good luck when they're like, hey, let's steal all of Craigslist customers. That just didn't happen out of pure chance. They put themselves in an opportunity to succeed and the list goes on and on. So, it can be related to your investment portfolio as well. Simone, I'm going to go. You see this? You see this bird's nest on my hair? I need to go get a haircut.

Yeah, I have one on Friday. I do as well, but I have less hair than you and I. I'm probably, oh man, I hope people enjoyed it because this was our third episode in a row. So we've been recording since it's like past four and recording since one so uh it's been a little bit of a grind but hopefully we still brought it for this episode because this was our last one show goes on baby yeah exactly show goes on now i'm gonna go smash a workout maybe jump at the pool get a uh get a haircut because this is out of control i'll go i'll go do some snow angels but yeah to each our own no angels oh man hey well shoveling's always a killer workout oh no i mean it hasn't are you a snowblower guy or a shovel guy shovel guy but i have the big scoop

so it's not uh it's not too bad on my back but um i think next house we buy, if we have large driveways, not that long. The issue is we have a big backyard for pretty central and the dog. So I will literally shovel a path around the yard for him so he can go do his business because Leroy, he's a small little guy. So he doesn't do well if there's more than like five centimeters. Snowy kind of sinks in so dogs and snow is just something you just incredible to see uh it's just like a basket of cuteness dogs and snow thanks for listening we'll see in a few days everyone if you have not picked up a paid plan of stratosphere.io take 15 off% off with code TCI. Caps, low caps, doesn't matter. Code

TCI. That'll give you unlimited watch list items, data going back all the way to 35 years. Notifications. This is the biggest thing that we've done recently if you haven't been on the app lately. So like I have my watch list here and I got a bunch of press releases came in that just said CrowdStrike's reporting, they just reported earnings. You know, Costco recently reported, Axon recently reported. So I'm getting a list. It makes the podcast research obviously very easy. But if you're managing your own portfolio, you're going to get notifications on what's happening inside your portfolio. So go ahead, get 15% off with code TCI. We'll see you in a few days, folks.

Take care. 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.