The Canadian Investor - Why the TSX Is Crushing the S&P 500 This Year

Episode Date: October 9, 2025

In this episode of the Canadian Investor podcast, Simon and Dan take a look back at how markets have performed so far this year from the S&P 500’s strong double-digit gains to gold’s massive rally and the surprising outperformance of the TSX. They break down what’s been driving returns in both Canada and the U.S., why certain sectors are leading, and how rare multi-year double-digit runs really are. The discussion then shifts to AMD’s landmark deal with OpenAI and what it signals about the AI arms race, before diving into Constellation Software’s latest conference call, leadership transition, and evolving view on capital deployment. The episode wraps up with a thoughtful conversation on economic moats how they’re built, how AI may erode them, and why management ultimately determines how durable they are. Tickers of stocks discussed: SPY, ZSP, ZCN, BTC, GLD, AMD, NVDA, CSU.TO, ADBE, CNR.TO, CP.TO Check out our portfolio by going to Jointci.com Our Website Our New Youtube Channel! 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 Asset Allocation ETFs | BMO Global Asset Management Sign up for Fiscal.ai 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.

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Investing is simple, but don't confuse that with thinking it's easy. A stock is not just a ticker. At the end of the day, you have to remember that it's a business. Just my reminder to people own cyclicals. Don't be surprised when there's a cycle. If there's uncertainty in the markets, there's going to be some great opportunities for investors. This has to be one of the biggest quarters I've seen from this company in quite some time. Welcome to the Canadian investor podcast. I'm back with Dan Kent. My name is Simon Belanger. We are back for some news and earnings. Pretty quiet on the earnings and news front, but we were able to find a few things. talk about looking at some of the returns year to date.

Big deal announced between OpenAI and MAMD. And then we'll go over the CSU, so Constellation Software conference call that they had regarding the leadership transition from Mark Leonard to Mark, who's the new Mark again? Miller. Remind me, Mark Miller, there you go. Got to remember that. And then you'll have a quick segment on economic modes. People will have to forgive me.

I'm a little bit tired. It's been, you know, I told you it's been a hell of four or five days between spending 10 days in the emergency room. No worries, I'm fine. And then dealing with a little bit of, you know, having a child and having to clean the house thoroughly. I'll just leave it to that. But before we get started also, we wanted to mention we did see the comments regarding the volume and the audio for those listening on the ad-supported version.

So we identify what the issue was. We're able to adjust it. By the time you hear this, so this will be on this Thursday, October 9. So it should be fine by then. So we did the changes. You'll probably have noticed the changes before that. It's just when you start adjusting volumes and things like that, changing the files with the RSS feed. It can take, depending on whether the episodes were downloaded or not, and a few other things, the platform,

It could take anywhere from 15, 20 minutes to about 24 to 48 hours for older episodes. So just keep that in mind. But we did hear you. We tweaked it. We found the issue. It should be better going forward. If you're still finding some issues, let us know, obviously, it's very hard to get the volume exactly perfect when you're doing ads and also talking with different intonation. Like we'll be talking today where ads is a bit more monotone.

So it will never be perfect, but it'll be much better going forward. Yeah, at least you won't have to rip your headphones out of your ears. I've had that, I've had that on quite a few podcasts, but I think you also meant 10 hours. I think you said 10 days in the yard. Yeah, 10 hours. Yeah, yeah, no, 10 hours. Sorry, not 10 days. 10 hours where I definitely wanted to leave a few times.

And, you know, the doctor was great, but it's just firsthand and just kind of show you if you're not, you know, and like immediate risk to your life, you can wait a very long time. but the staff was the staff were great at the Ottawa Civic Hospital is where I went so just shout out to them they were very good clearly probably very short staff too so anyways let's get started enough about what the hell of the last four or five days it's been for me let's talk a little bit about what the market is doing right now it's been like we were just talking before recording it's kind of crazy how things have been going up and up for the last I don't know couple months, but I would say now, pretty much since the aftermath of Liberation Day, that's how it's been looking like. And it's almost everything, right, that's going up in terms

of the big indices. So you're looking at the SMP 500 here. That's up around 15.5% if you're using the SPY, so U.S. denominated here. If you're looking in terms of CAD returns, I know a lot of people will have the S&P 500, but the Canadian version, so obviously you get. either a boost or on the other side you get lower returns depending on the strength of the Canadian dollars relative to the US dollars. Something like VSP or ZSP from BMO. That's up around 11.812%. The BMO ZZCN, which tracks the S&PTSX, that is up a whopping 23.1%. And I'll dig in a bit more to what's been driving the returns for each. Not surprising because materials, which has a lot of Gold miners have just been crushing in, and I'll get some numbers, which is just eye-popping

how well they've done this year. Coin, Bitcoin has been doing quite well, so Bitcoin is up about 33% this year, so very good year so far for Bitcoin, but last but not least here in terms of more growth asset, I guess, or store values, whatever you want to call them. Gold. Gold is up massively year-to-date, so I'm just looking at this year. 50.5%. And the futures just keep going up too. Pretty exciting. I have a pretty big position in gold. But like we're talking, Dan, like gold rarely goes up this quickly, this much. And I'll

be very honest, it kind of scares me that something may, the gold market, something might be happening or sniffing something out that I don't know whether there's something that could happen in treasuries, whatever it is, but this is just massive for gold this year. Yeah, like when is the last time gold has gone up 50% in a year? I mean, I'm sure you could find other times. But if you look at a long term chart. Yeah, I think it probably, yeah, you'd probably have to go back, I would think, like, in the 70s. Like, I'm just going on top of my head.

I could be wrong for that, but that would be my first instinct. Yeah. I mean, I know gold did pretty well pre-financial crisis, I guess, too, from like 2005 to 2008. But, I mean, obviously, I wasn't old enough back then to ever pay attention. But I would be shocked if it went up 50% in a single year. And in regards to the TSX, I mean, banks as well, a lot of financial companies, period, actually, like Brookfield's doing quite well, pretty much all the banks, insurance companies, which is, yeah, I mean, it's very rare. The TSX kind of outpaces the SP 500. Obviously, over the long run, it hasn't almost at any point in time, maybe except, you know, again, post financial crisis for a few years. But, I mean, when you get gold ripping and banks doing as well as they are, it's not surprised to see, you know, the TSXs. sex up by nearly 25%. Well, even like TLT, which is tracks US, it's an ETF for 20 plus year in terms of

duration for U.S. Treasury, even that is up 5.4%. But we might as well talk about the TSX here before we kind of go and see a little bit more what's been driving in terms of the sector is here. And it's pretty impressive. So this is as of September 30th, 2025. So clearly, you know, a few days off, but I think it still gives us a really good overview of what's been driving those returns in terms of sector. And just looking at it, I mean, there's one that stands out really above all the rest, and that's materials. So that one is 79% year to date.

And because the TSX is very heavy in gold miners, but in miners in general, commodities have done pretty well with the exception of oil, of course, which would fall more in the energy category. this one has just been driving returns. I didn't realize how much it was up, but it kind of makes sense just to see how like a Franco Nevada and some of the other miners have done. Yeah, I mean, you look at even like a blue chip like Agneco and it's up, I don't know what it would be up 110% year to date.

So if a company like Agneco was up that much, if you look to like probably the intermediate or the junior miners, I mean, I would imagine they're up way more than that. So, I mean, I did not think it would be, I didn't think the material sector be up. 80% year to date. I thought it would kind of be a mix of, you know, financials and materials. But yeah, I think what does it make up 15% of the index, I think? So obviously you're going to see huge returns when when gold miners do well. And it's actually, it's been a very long time

since gold miners have done well. So yeah, it's good. I don't own any miners. I used to own Agneco. I obviously sold way too soon. Well, you own Franco, right? I own Franco, yeah. But I sold Agneco way too soon. I mean, it's always easy in hindsight, right? But aside from that, I mean, after that, it's more still some good years for sectors, like financials you were saying earlier, 22.5%. You're looking here at information technology close to 20%, 19.7. Some of the other sectors doing well, consumer discretionary.

I don't know if there's that many that fall into there. But regardless, so that one is 18%. energy around 17% kind of surprising. Didn't think energy had done that well. Utilities 17.5%. And then it kind of drops for the rest in the low teens or 11, 12% that area. And then you only have one sector that's down in those first three quarters of the year.

And that would be healthcare. But I pretty much disregard healthcare. I'll be honest. And no offense to anyone that's invested in Canadian healthcare companies. Just it's so tiny. I think there's what Bosch and maybe a few, a handful of companies, and it's such a tiny portion. So essentially the TSX, for lack of better words, it's up across the board this year. Yeah, I think on, I just quickly looked up a discretionary index fund.

And for some reason it contains dollarama. I don't know, maybe dollar am is technically classified. I would have figured it would be a staple, but yeah, you're talking like magna. They do sell a lot of junk. Yeah, they do. Yeah. Magnet International, like Gilden, Ritsia, BRP, and a lot of those companies have done very well this year. But yeah, it's a smaller portion of the market for sure.

Yeah. And then if you start looking here at the U.S., so sector speedy R, I always find it pretty interesting to start looking at what's going on in the U.S. And then the U.S., you know, it's a little bit different, but because of the composition. Now, people will probably see that are watching on Joint TCI materials only up 7% when we're looking at 75% or 79 in Canada. That's because in Canada, it's very minor heavy. In the U.S., there's only one minor, I believe, Newmont, that is in the S&P 500. And then they're materials, but they're different kind of companies. So that's why it's only up 7% there.

But aside from that, the top performers in the U.S., you have obviously. here, technology, 23%. You have communication at 20%. Those kind of overlap quite a bit. So the sector is always really weird when you start looking at these. Just keep that in mind. And then you have industrials. You have also utilities around 17%. So definitely pretty good performance again across the board. There's only one that's down in its consumer staples. Help care is even up here 5%, which was not the case when we last look at this earlier this year. So it's pretty much up all across the board. But you see because the SNP 500 has much different concentration than the TSX, you see the discrepancy there now. Yeah. And it's not really, I mean, it shouldn't

really be surprising that a lot of like defensive stocks are kind of drawing down in a market like this. I mean, if you look to a lot of Canadian names, a lot of defensive Canadian names, I mean, they pretty much peaked at I would say liberation day or or close around there and I've kind of been in drawdown since but yeah I mean if you the S&P 500 is up yeah 15% this year but I think even the most impressive mark is if if you would have grabbed this one like post liberation day like at the bottom the SP 500 is up 36% off those bottoms it's just crazy yeah that's I know I mean it's well it's pretty much at this point like close to six months from now. So if we look, let's just look at the last six months. And yeah, the,

the returns are are pretty wild when you start looking at the last six months. You're looking at yeah, some pretty solid returns in terms of the S&P 500. Yeah. Got to buy the dip. By the dip. Exactly. No, but I thought it was, it was kind of interesting to do that and just to put things in perspective a little bit. And talking about the S&P 500. So one thing that people may look at, and we've talked about on this podcast, is, look, we had two 20% plus years, 2023, 2024. You could make the case that were probably on track potentially for a third one, but at least we're on track for three double-digit growth years in terms of percentage.

So since 1928, the SMP 500 had only five periods of three consecutive years of more or more of double digit return. So it's more common than not. And this would be the third one if we, sorry, the sixth one, if we include this. So now where it gets pretty crazy is if we hit 20%. Now, if there's three years, three consecutive years that are 20% or more in a row, there's only one other time since 1928 when that happened. And I don't know, did you read it, did you read my notes or can you, can you guess? Well, I mean, there's only, I did, I did read the, notes, but if you asked me to guess, I mean, that would have been about it's, yeah, the 1990s. So the late 1990s, the tag bubble was the only one. So that one had four years in a row of 20% plus. And actually,

if you want to round up, you would have a fifth year, which was 19.5% for 1999. So just to show how I guess people can get a bit complacent right now, thinking that the markets always go up, war entering potentially by the end of this year, like kind of historic proportions, like something that does not happen very often. It could very well continue into fourth and fifth year. I'm not saying that it won't happen. I'm just saying I think it's important to realize that this is pretty rare, this kind of situation. We don't see that very often. Yeah, I mean, it's kind of the same situation as it was back in the late 90s. I mean, you had the internet, kind of a new piece of technology, I guess you could say, that was

kind of, you know, supposed to revolutionize the world, which I guess it did. But, I mean, the fallout from from kind of that situation was a lot of these companies really didn't make any money off of it. You know, there was the expectations that it was going to start driving profits like almost immediately, whereas it took, you know, quite some time. I mean, it also is a much different situation in the fact that, you know, the major players in AI today are, are generating a large amounts of profits, large amount of free cash flow, whereas back then it was more,

I mean, it was pure speculative mania, but I mean, there are a lot of parallels between then and now. I guess it just depends on, you know, artificial intelligence and the profitability of it moving forward because there's no doubt going to be

trillions of dollars dumped into it, that's for sure. In this kind of market, I like having some cash on the sidelines. It gives me the flexibility to jump on opportunities when the right stock goes on sale. But just because the cash is waiting, it doesn't mean it shouldn't be working for me. That's why I use EQ Bank. They offer some of the best interest rate among Canadian banks,

so my money's still earning while I wait. You can even get a boosted rate by setting up direct deposit for your payroll and depositing $2,000 or more per month into your EQ bank account. Your cash stays liquid and ready to go when it's time to invest. And if you're not in a rush to access your funds, EQBanks' notice savings accounts and GICs are great ways to grow your returns even more. It's a smarter way to park your cash. Visit EQBank.ca to learn more and keep your money earning even while you wait.

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One of my favorite trips this year was a cottage stay on Airbnb less than an hour away from Ottawa. Every morning, my daughter would run straight to the lake, sometimes splashing, other times poking at the water with her little pink net, trying to catch frogs. Getting her out for dinner was always a challenge, but after days like that, she went down so easily at bedtime. That gave my wife and I the chance to fight. finely on wine, in the hot tub, and watch a sunset together. Having a cozy place to come back to made the whole trip feel effortless and special. It also got us thinking about our own place.

If someone else's home could be such a perfect fit for us, maybe ours could be for another family too. Hosting our home on Airbnb would let them make their own memories in our beautiful neighborhood while giving us a little extra money to put towards our next trip. and the nice thing is the flexibility hosting provides so we can decide when it makes sense to host our home. Your home might be worth more than you think. Find out how much at Airbnb.ca slash host.

Yeah, speaking of AI, the word is news that came out today and we're recording this on October 6th because I'll be traveling to Calgary for a medical procedure this week. Nothing crazy, but that's why we're recording a little bit in advance when you hear this on Thursday. Well, AMD and OpenAI seemingly made a deal. So do you want to go over that? I just kind of saw the headline because, as you know, it's been a crazy morning for me.

So why don't you break it down for us? And I'll probably chime in. Yeah, so OpenAI has signed a deal with AMD that will pretty much make AMD one of the core suppliers of computing power for the LLM. So it looks like they will deploy, Open AI will deploy up to six gigawatts of computing power with the first gigawatt being delivered in the second half of 2026. and the deal is expected to help AMD generate tens of billions of dollars of revenue over the next few years in regards to Open AI and they actually expect that it could open them up to being able to generate like hundreds of billions of dollars of revenue they had mentioned just because I mean obviously this deal kind of opens it up to you know potential other deals

and this deal also came with Open AI having the ability to buy 10% of AMD stock. I don't know the exact particulars. the deal. I kind of heard like something about a $600 price in terms of AMD stock price before these warrants could be executed. But I'm not 100% sure on that. I didn't really get time to look into the details. But effectively, they'll be given one cent warrants. And if they kind of hit certain, you know, performance benchmarks, they'll be able to, you know, execute them. And they own 10% of the company. Prior to this deal, like, NVIDIA was effectively the supplier to Open AI. So this kind of gives AMD a seat at the table. And I mean, I'm not saying, I'm not saying this is a bubble by any stretch, but there is, there is certainly a demand for AI computing power. But if you're ever, if you're not concerned about the concentration of this in terms of a very select few players that are kind of just sifting money around and deals around, because like, I think Open AI makes like $12 billion a year or something like that. It's crazy. And there's,

I don't know. I think it's around 12 billion. But yeah. Yeah. I'm pretty sure it's around 12 billion and we're hearing numbers of like, you know, hundreds of billions of dollars in revenue and stuff like this. Like, I mean, I just, I don't know. It's, it reminds me of.

And again, we go back to the, the dot com bubble and there was Cisco, their core strategy of kind of vendor financing back in the day. So what they used to do is these companies couldn't afford Cisco equipment. so Cisco would effectively finance, they would supply financing to these companies to buy Cisco equipment. And effectively when demand wasn't as high as expected, I mean, a lot of these companies,

you know, they couldn't pay back the loans. They went bust and Cisco eventually took the fall. I mean, this situation is obviously a bit different. It's not like Nvidia or AMD are providing OpenAI with financing. But it just kind of gives me the same vibe.

I mean, back in the day, obviously, the risk with Cisco was that vendors, they'd go broke, the loans would be unpaid. The riskier would be monetization really doesn't come all, you know, fast enough and hyper scalers kind of pull back spending. I mean, it's. Yeah, exactly. And yeah, I'm just, I was looking it up on Chad GPT, so might as well ask it.

Yeah, if it's creator is the revenues and profitability. So take this with a grain of salt because I didn't have time, obvious as I was doing to verify all the data. And just as a reminder, it is wrong a lot of the time. when I was looking up for the data for the SMP 500, those consecutive years, you have no idea how many times it was wrong because I validated all the data. And it was kind of crazy. So good thing it does provide sources.

So you can check it yourself. But yeah, so it says around $13 billion run rate. It's burning probably $2.5 billion in free cash flow or negative cash flow cash rent every year. So it is definitely not profitable. I always get a little scary when there starts being just these massive valuation on unprofitable companies. That's always a little bit of a red flag for me. But I agree with you.

There just seems to be a lot of, I don't want to use the word, but a lot of close relationships between a lot of these companies, which are a little bit reminiscent of the dot-com bubble. Clearly, there's some differences, some big differences. A lot of the companies are very profitable to hyper-scalers, for example. So not trying to say it's the same, but I think you'd be wrong to say that it's completely different this time. There are similarities. There are differences.

If you're saying it is the same as 1999, I think that's also wrong because there are definitely some differences. I think the truth is somewhere in the middle. But I think it's just a reminder to make sure, you know, I think, for me, it's always a bit more of a nuanced approach. There's definitely things that are rhyming with them, but there's definitely some things that are different. And of course, I think, yeah, the hyper-scale are the ones that come to mind.

Yeah, it just seems kind of weird. Like, you're, you're kind of giving away equity for this company to buy your products. I don't know. Like, it's very, and then you, you like just, I mean, when did it, when did Nvidia kind of invest in? in Open AI. That wasn't too long ago, but I mean, they're main competitors. I mean, obviously that I think the

Nvidia one is very weird. It's weird. Yeah. Like, it's hard. It's, it's hard to comprehend. Like, I. And then like, depending on the conditions of, you know, this deal as to when they could actually exercise their, those warrants to actually grab the shares. But like, you have the government buying Intel and then you have like the whole Nvidia situation. Staken Intel. Staken into. Yeah. Yeah. Sorry, staking Intel. And then you... I think it's 10% right, if I remember correctly, the U.S., yeah. Yeah, and then you have the whole Oracle situation, then NVIDIA kind of strategically investing, and then AMD saying, hey, like, buy our chips and, you know, we'll give you 10% of the company.

Oh, it's a weird situation, but AMD, I think, I don't know what they're up now. At one point, they were up like 30, 40%, 20%. 28, yeah, so they've given a bit back. Yeah. But I mean, like huge, well, I remember back, how much did Oracle go up after that quarter? Like, you're seeing like. 33's. Yeah, 40, I think 40% was around the peak it went up.

Yeah. Yeah, like hundreds of billions of dollars in market cap movements on like forward commitments. The one thing that really scares me is people are getting very excited with AI just based on sales. I think a lot of the market is just disregarding profitability. Yeah. I'm not saying all of the market because clearly there's a premium place on those high scalers that are extremely profitable and their AI investments could go completely down the gutter and they'd still have very good legacy businesses if you want to call them legacy so that's fine

obviously they'd have probably a massive pullback because there's so much growth projected into that but it just seems like the market is getting excited and is just not really putting much importance on profitability. And whenever that's the case, there tends to be like down the line a pretty major pullback. I mean, we saw it in 2021 for different reasons, but all these high growth companies that were not profitable just got crushed in 2022. The ones that were profitable lost, you know, had a significant pullback, but weren't hit as hard as the one that were unprofitable. But again, this could continue for a year. Oh, yeah, three, four, five. Like, we don't know. And I think that's important maybe to wrap it up here before the next segment. I think

it's important to to stay invested, but I'll say it again. For me, it's just making sure that, yes, I am benefiting from some of the upside here. I do it in big, large part, with a few names, but also index funds. But I do have some hedges in place. that will limit my downside in the event of a pullback, which I think is inevitable. But the problem is it's impossible to predict when it will happen. And that's the trickiest part. Yeah. Yeah, I mean, I think it's very difficult to say because like if they have their like say in the case of the hyperscalers, they have their core businesses.

But I mean, if they spend all this money and demand doesn't materialize and like they're depreciating those assets. Faster than the earnings are coming in like earnings will take a hit that even though you know cash flows might stay steady. But I can't even remember a report I had read that had mentioned like the these data centers are depreciating at like twice the revenue generation that they're actually providing. So like at some point you're going to need to kind of turn that around and actually, you know, start generating profits. And like the other difficulty is is like. the vast majority of those data centers like the assets inside of them probably I mean how quickly would those chips become obsolete you probably got to depreciate those much faster and like overhaul those I mean it's so there's so many questions right now which kind of you see deals like this and I mean you can you can even see it on places like X like so many people find this so puzzling like how it's even it's it's hard to comprehend and yeah it's yeah I mean I think

the best way to say it, it's really exciting and scary at the same time. Those are the two emotions that I have going. So I think that's a good way to wrap it up. In this kind of market, I like having some cash on the sidelines. It gives me the flexibility to jump on opportunities when the right stock goes on sale. But just because the cash is waiting, it doesn't mean it shouldn't be working for me. That's why I use EQ Bank. They offer some of the best interest rate among Canadian banks so my money

still earning while I wait. You can even get a boosted rate by setting up direct deposit for your payroll and depositing $2,000 or more per month into your EQ Bank account. Your cash stays liquid and ready to go when it's time to invest. And if you're not in a rush to access your funds, EQBanks notice savings accounts and GICs are great ways to grow your returns even more. It's a smarter way to park your cash. Visit EQBank.ca to learn more and keep your money earning. even while you wait. Want to buy a stock but don't want to shell out hundreds or even thousands for a single share? With QuestTrade's new fractional shares, you can invest any dollar amount and build a diversified

portfolio instantly. No delays, no trade fees, no excuses. Want to put $10 into a stock trading at $100? No problem. Quest Trade has you covered. They're the first broker in Canada to offer real-time, commission-free trading for U.S. fractional shares in ETFs. It's simple, powerful, and finally available in Canada. Head to quest trade.com to open and fund an account. Use code TCI, and you get $50 to get you started.

One of my favorite trips this year was a cottage stay on Airbnb less than an hour away from Ottawa. Every morning, my daughter would run straight to the lake, sometimes splice. other times poking at the water with her little pink net, trying to catch frogs. Getting her out for dinner was always a challenge, but after days like that she went down so easily at bedtime. That gave my wife and I the chance to finally unwind in the hot tub and watch the sunset together. Having a cozy place to come back to made the whole trip feel effortless and special. It also got us thinking about our own place. If someone else's

home could be such a perfect fit for us, maybe ours could be for another family too. Hosting our home on Airbnb would let them make their own memories in our beautiful neighborhood while giving us a little extra money to put towards our next trip. And the nice thing is the flexibility hosting provides so we can decide when it makes sense to host our home. Your home might be worth more than you think. Find out how much at Airbnb.ca.com slash host. Now, we mention hear the conference call with consolation software. So I was able to listen to it as well as I was cleaning this morning. So, but I know you did some notes. I mean, my main takeaway is that it's pretty much staying the course. That was my biggest takeaway. I mean, there wasn't that

much in terms of remark. No. It was just, just Mark Miller saying, yeah, like, they're basically continuing same course as it was under Mark Leonard. And some questions from analysts, but for the most part. Nothing much new came out of it. No, I mean, if you kind of, if you wanted anything substantial in this conference call, you're probably disappointed again. And I think they kind of did that in the AI related one as well. They didn't really give that much up. Did you actually listen to the call or read it? You listened? I listened to it. Okay. So Leonard was not there because I only read it. No. Yeah. That's got that was kind of. I don't think so. Yeah. I figured he would have been around. Do you think he would have joined the call? But yeah, that was kind of the most.

interesting thing to me, but at least, yeah, so I listened to three quarter and then I, I kind of just read quickly the last quarter, but I would not imagine that he would have joined the last quarter of the call. Yeah. Yeah, I mean, the one interesting area, I guess to me was an analyst asked them if they're in a situation where there is not enough targets to deploy at like the amount of capital they have. What will they do? Like, do they lower their hurdle rate, which is effectively kind of the minimum amount of return they need to get before buying a company. Did they pay a special dividend or do they potentially even let the cash pile up? And he did mention that, like, they didn't really give anything away here either. He just said,

you know, what they'll do is what they feel is right at that moment in time. And Constellation did dish out a special dividend in 2018. And they kind of wondered for a long time as to whether or not that was the right decision. I mean, if you consider how well they've turned capital over over the last five, six years, you would argue that it wasn't the right decision. And it kind of gave that kind of vibe. So I don't know if they're going to go the dividend route. And I did know, I do no topic has issued a special dividend this probably a couple of years ago. And I don't think the market really reacted all that well to it.

So I mean, obviously, you know, a company that has compounded your, your money at a 20 plus percent rate. You don't really want to be getting special dividends. It's, it's better left internally. Yeah, but if they don't have any, like you also don't want them to. Spend it unwisely. Make a deal just to make a deal exactly and not necessarily having a good deal. So I think they'll probably try my two cents. They'll probably try balancing maybe returning some money to shareholders, but also

keeping some dry powder on the balance sheet to be able to to pounce if there's some potentially larger deals on the table. Yeah. Yeah. And another thing they kind of spoke on was buybacks because obviously when we see Constellation go through such a big drawdown here, like there's kind of a lot of commentary. on buybacks and like Constellation has never been a fan of buybacks. I mean, if you look at shares outstanding chart, it's the exact same in 2006 as it was now. Like, they don't buy back.

They don't issue. Miller kind of had mentioned that, you know, the lack of buybacks is more of a philosophical thing. But I kind of think that like, why buy back, buy back your own shares at 25 to 35x free cash flow when you can just buy other companies probably smaller VMS companies for for much cheaper. But yeah, I mean, the gist of the call was. just kind of the fact that nothing is going to change. It's, it's going to be effectively the exact same thing as it was before, just without Leonard. And I mean, he's still on the board. He's just not, you know, he's not the top dog anymore, I guess you could say.

Yeah, a lot of analysts. One thing that came that was obvious was a lot of analysts were wishing Mark, best of luck, you know, hopefully recover as soon. But no one seems to know, yeah, obviously exactly what the problem is for the health issues. I assume it's probably not that great if he wasn't on the call, but let's hope for the best, that's for sure. So, yeah, that was a similar takeaway for me. It doesn't seem like it will change all that much. I'm a recent shareholder sometimes I think I've said in the past. I know a lot of consolation shareholders or people that love the company listening will probably think it's blasphem is, but maybe it's just a combination of things, right? You

return some money to shareholder, whether it's in the form of a special dividends, some buybacks, and then you also keep some money on the balance sheet to go and make some larger acquisition, which they did mention that they're looking at some potential larger acquisition. I recall hearing that on the call. So we'll have to see, but it doesn't have to be an all or nothing. You know, it's not the same company that it was 10, 5, 10, 15 years ago. I think it's important for people to remember that.

Yeah, and I think they pretty much state that themselves, like they're not going to achieve If the returns, you know, their stock price would have to be a fraction of the price it is now in order to get those returns. But do you want to move on to the, to the economic most? Yeah, let's go for the economic mode. I mean, I guess the last thing is you don't want them to sit on too much cash that doesn't return anything. And I think it's creating that balance. I think they will return it. If it came down to that, like I think they already have three and a half billion in cash.

Like, I don't think they're going to let that get too high. if they can't find deals, they probably would pay it out because they have in the past, Topicus says in the past. So, yeah, I don't think that's going to be, you know, all that difficult of a situation. But this economic mode was actually when we did the podcast with, with Braden, that kind of three, three team. This was kind of my segment. And it does relate to consolation, you know, in a way, because I had built this out kind

of a good topic in light of kind of their AI related issues, because. this is a company that had a large economic moat built primarily around switching costs. However, obviously, AI is posing a direct threat to a lot of that moat. And I kind of do think the term is used a bit lightly and focusing on it too much, that being economic modes, is kind of a fundamental flaw. And I mean, we do hear a lot of investors kind of preach that you need to buy companies with strong economic modes, obviously lower chance of disrupt. larger ability to kind of flex that moat increase you know margins profits from it and also just from a stability standpoint and I do like again I do agree with that I'm not trying to downplay the value of a company with a moat but I think the market is largely like very effective at just pricing these in to the businesses you're going to buy anyway so I mean a lot of people believe that you can kind of gain some edge by identifying companies and you know with strong moats and buying them. And I think you're just paying that premium anyways. Where I'd push back a little bit on that is if there's a significant correction or market

crash where basically everything drops, maybe not to the same extent, but you end up getting some very, some fantastic companies that end up dropping very quickly in value. Usually it doesn't last for very long to your point. But if you're looking at whether it was the dot com or the Great Recession or even looking at the 2020 crash for the COVID crash, you can sometimes get those companies at a very fair or even discounted price, but you literally don't have a large window. And outside of that, you're right. I think they're usually come at a premium.

Yeah, they're just during crash like situations, yeah, you can get a lot of companies at discounts. But I think like, I don't think the element of buying. companies with economic moats will give you any sort of alpha over the market in general, because I think the market, they just kind of priced them in. And the reason I kind of, you know, spoke on this in regards to Constellation, I mean, this is a company for a long time that traded at a premium valuation, especially when it was, you know, putting in a ton of capital into very strong deals post-pandemic. It was pretty rare that this company traded, you know,

under 30, 35x free cash flows. And, you know, now that the moat is potentially under fire the market pretty much instantly kind of revalued this one. I think it's like 25x now. And we see it with a lot of companies. I mean, you look to a company like waste connections and you can kind of sit there and think like, oh, how does a company like this, they're only growing at a 10% clip, how do they trade at 40x earnings? And it's, it's primarily that moat. Like the market just, they kind of price them in. So I don't really think like if you're, if you're kind of seeking these moats, like trust me, you want to seek these moats. But a lot of people, people kind of believe that investing in these companies might give you an edge on the markets.

I think the market is very, very efficient at just pricing them in. I mean, we can look to another company like Adobe. I mean, they had a huge moat in terms of digital services. I mean, you're talking Premiere Pro, what else do they have? Acrobat, Photoshop, things like that. And I mean, as soon as the potential disruption from a lot cheaper AI-related services in terms of video photo editing, thing like that, the market pretty much immediately rated that company downwards. So I think a lot of investors kind of get stuck in the mindset of structuring an

investment thesis around the idea of this company isn't going anywhere. Like I hear that all the time or, you know, the barriers to entry are too high, which again are all elements of a company with a moat, but the market already knows this. You know, they know, the market knows how difficult it would be to build out Amazon's distribution network. They know how difficult it would be impossible it would be to say build out railway infrastructure. They know that companies, you know, they won't switch from a platform like Office 365 because of how deeply ingrained it is into the business. But I mean, the market already knows this.

So I think if your core thesis kind of boils down to buying companies because of these economic modes, like you'll probably do well. Don't get me wrong. But a lot of them believe that, you know, they kind of get an edge from identifying this. I mean, it's publicly available information. Like the market knows this. It's probably pretty priced accordingly. And I guess the one thing that I kind of, you know, kind of leading this all into is I think like you have to identify that moat and then you need to pretty much figure out what management is going to do to kind of generate, utilize that mode.

And I guess we've talked about it numerous times, but like CNRail would be an example of a company like they have the moat. The markets price them with the moat. I mean, you're not gaining any sort of edge buying them with the moat. of what you probably would gain an edge from is management making wise decisions. And I think CNRail is kind of the opposite of that. Whereas a company like CP, I mean, on the flip side has done a very good job. I don't know. We probably won't go over it again.

But I mean, CNRail effectively for the better part of like three, four years, bought back a bunch of shares at peak prices, raise the dividend. I mean, spent way more than what they were bringing in. And ultimately, that's hit them pretty hard now because we're in a bit of a freight recession. and they don't really have as much money anymore to buyback shares. So now they've kind of scaled back buybacks during a lower environment. So I mean, we've seen numerous companies kind of blow up substantial moats just kind of due to management decisions.

Yeah, go ahead. Yeah, well, it just goes to show. Yeah, I'm sharing here for joint TCI subscribers. So Canadian national LCP and ZSP. So if you invest in the S&P 500 Canadian denominated dollars, over the last. five years. So SNP return 122%, CP 41%, and you're basically breaking even with Canadian National Rail, despite all those buybacks, which would be in much better shape today if that management team would actually have used some of that buyback money and just reduce the debt.

Yeah. I bet you they would actually be sitting on better returns. I think so. Yeah. And their profits would look much better as well. So I think that's my problem is, yeah, like sometimes maybe it makes management teams a bit complacent. Clearly, they still have that moat and hopefully shareholders at some point will kind of, I'll be honest, just get rid of that management team. I think they've just made some stupid decision and the stock returns are pretty clear here. But it just goes to show that, yeah, having a good fantastic mode doesn't mean that you'll perform as well as the market or, outperform you, even CP you can make is better managed and it's still trailing the markets

pretty, uh, pretty significantly over that period of time. But no, I think that's a definitely a good point because I think sometimes people may place a bit too much important on, on moats. Yeah. Not that they're not important. I think they're very important. I think it comes down like, I still like to invest in business that I have modes, but I think it comes down to buying them at the right price. Yeah. Because when you have a company that has, a mode that is unlikely to get disrupted and not impossible, but unlikely to get disrupted for decades. Like, let's take the railways, for example. It's very easy to just sit back after that and just kind of let it run. Where other companies that have, may have modes that are not as

ironclad, I would say, that have more probability of getting disrupted than you have to keep an eye out a bit more for them, but again, you can also make you a bit more complacent if you think that mode is almost indestructible, like a, you know, like a CNREL, right? People might own that and just say, oh, look, I know that management team's not great or they just don't really look at it and then they do what I just did and look at the past five years and say, wow, I actually would have made more just owning U.S. treasury bills during that period of time. Yeah, it's, I mean, that, that's kind of what the, the kind of core idea of this was. And it was primarily due to the fact that, you know, Mark Leonard's resignation, like,

I think the management team is much more important than the moat, because you could argue a company like BCE had a moat as well. I mean, it's, the infrastructure is obviously, you know, nobody wants to build out the infrastructure. There's a ton of government regulation put in place. So these telecoms, although it's kind of loosening now, but still, like, they are heavily protected. Yeah. And I mean, they were a complete disaster. Management was a complete disaster.

And I mean, you can look back to. Still is. Yeah, it still is. So like, it's kind of what I, why I wanted to highlight this is like the moat, you need the moat, but the moat is not what is going to give you the edge. Yeah, it's not what's going to give you the edge because the market's going to price it in accordingly. And I mean, some other examples that you could look back to black.

Barry. I mean, they made, they were dominant and they made a very, very poor decision to kind of, effectively, they thought that smartphones would be more business-centric rather than retail. So they kind of ignored that side of the market and just got crushed. Another one I think of is Kodak. Kodak actually developed the first digital camera ever and they buried it because they thought it would kill their film business, obviously. Yeah, their legacy business. Yeah. And what is the other one? Blockbuster. So Blockbuster had a chance to purchase Netflix and they kind of laughed them out of the building. Yeah. Yeah. Yeah, I actually saw someone post on Twitter. So I think it started like maybe 1980s. It was this role showing it like a US and Canada map of the amount of blog busters. Yeah.

Through the years. So you see it increasing increasing increasing and then it hits its peak probably around the year 2000 roughly, just kind of going off memory there. And then it just starts like crash like going lower, lower. But that, yeah, that's a good example there where they did not innovate because they didn't want to impact their legacy business. And then another company just innovated and eventually they went out of business. But, yeah. Yeah. Yeah.

It's, I mean, moats exist, but I mean, the market is going to price these in probably accurately 99% of the time. I mean, I guess you can maybe identify some, you know, smaller cap stocks that the market maybe doesn't pay attention to do as much. But yeah, I mean, I guess this kind of highlights like why I am still quite bullish on consolation overall because I mean, I believe, yeah, the moat is under a bit of, you know, I guess uncertainty, but there's also a management team that's in place a lot of continuity there and a management team that has delivered for a very long time. Whereas, you know, in opposite situations, you can get a company with, you know, an outstanding mode around the business that just kind of mismanages it. So, yeah, it's, it's a core concept, but it's definitely not the own. It's kind of the beginning, not the end, I would say, of, you know, trying to find companies. Yeah. No, I think, and that's a good place to wrap it up, I think.

So really good segment, I thought, because I think people sometimes will place too much importance and sometimes a bit blindly investors on moats. So that's a good refresher that it's not an end all be all. Again, we do appreciate the support for those interested in subscribing to our piece. You can go to join tcii.com. It's $15 a month. You get the podcast feed ad free, the full videos. We get our monthly portfolio updates, my parents' retirement portfolio update. And obviously, we try to respond to questions much faster there.

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