The Canadian Investor - Why This is a Stock Picker’s Market and a TFSA Mistake to Avoid

Episode Date: January 22, 2024

Join Braden and Simon in this insightful episode of the Canadian Investor Podcast as they demystify treasury bill ETFs, uncovering the mechanics behind this investment strategy. Discover why substantial returns are within reach without the need to meticulously pick the market's 'magnificent 7.' The hosts delve into the driving forces behind stock market returns, shedding light on key factors that shape investment outcomes. Simon shares valuable insights into common TFSA mistakes, providing listeners with the knowledge to optimize their tax-free savings. Additionally, Simon unveils a new position he recently initiated. Ticker of Stocks discussed: TOU.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 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  Sign up for Finchat.io for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. The Canadian Investor Podcast. Welcome into the show. My name is Brayden Dennis, as always joined by the accommodating Simon Belanger. The reason you get that accolade this morning, I think I texted you on Monday. I was like, oh, by the way, yeah, you know how

we're supposed to record tomorrow? I'm going to Mexico. I probably should have told you that, but we can work around this, right? Yeah. It's okay. You thought you had told me, so I'll give you- I did think I had told you. Yeah. I'll give you some points there. Okay. Sounds good. Well, today's show, we're going to go through a listener question right out of the gate. I'm going to talk about a very surprising statistic after going through the data about what happened in the market last year, globally in the US and in Canada as well. And then we're going to talk about the 70-20-10 rule. Simone, you have a new position as well.

Yeah, yeah. Is it brand new or is it like last month? I would say like a couple of days ago, yeah. Okay. So I would say pretty fresh, yeah. Okay, so this is news to me too as well. So stick around to the end. That'll be the last one Simone's going to talk about.

Yeah, a little preview though. Like if you to the end. That'll be the last one Simone's going to talk about. A new position. Yeah, a little preview though. Like if you're from Alberta, you'll probably like that position. But they probably already own it. Yeah, that's right. That's right. Simone, we have a listener question that you wanted to talk about from joinTCI.com. Go ahead and go to joinTCI.com to support the show we do prioritize

questions there you can see the podcast on video and you get our monthly portfolio updates you want to kick us off here yeah yeah definitely so um like you said we do try to answer all the questions we get on join tci and when they're a longer, I do like to grab them and answer them on the podcast. Or if I think there's really good value for other listeners, I'll grab it and answer it on the podcast. So the question is from Tef Ramsey. The question is, I have a question about U-Bill and C-Bill. So these are Treasury Bill ETF. The first one, U-Bill, is a U.S. Treasury bill ETF. The second one, C-Bill, is the Canadian Treasury bill ETF. Teff said, I know it's an ETF that's backed by Uncle Sam, so we're referring to the U.S. one, and also a Treasury bill that have a maturity date.

Essentially, how does a Treasury bill ETF truly work? Said that he's read multiple times and doesn't fully understand it. So I'll try to demystify that. So there's a couple of components. So there's the ETF components and also the difference between treasury bonds, notes and bills. So treasury bonds, we'll start off with that. These are the longest duration and will last between 20 and 30 years. Interests on these are called coupons and they will be paid every six months. Treasury notes are kind of in between treasury bills and treasury bonds. So these typically go from two and 10 years in duration. Treasury notes will pay their interest coupons every six months as well. Now treasury bills,

the one that he's referencing, have less than a year in duration. So it could be a couple months up to a year the other differences with this is that Treasury bills won't have interest coupons like I mentioned every six months instead they'll be sold at a lower value than what their par value is so for example if you buy a Treasury bill that matures in one year and it pays 5.2 percent interest you'd buy it at $950 and then a year later you'd get a thousand dollars back therefore making that that interest now a treasury bill etf would

fall into that category of a money market fund which buys treasury bills when the treasury bills comes to maturity the money is rolled over in two new treasury bills and investors are paid a distribution based on the interest accrued typically on a monthly basis now in terms of the inner workings of the etfs i'm not a hundred percent sure how it works but i'm assuming it's similar to how stock etf works there's all different kinds of etfs obviously we've learned with uh in recent weeks there was also the bitcoin etf spot bitcoin etf that was approved in the US. Now, my assumption would be that if there is new money coming into the ETF, so new inflows, the ETF will buy treasury bills to then create more shares.

If money goes out, then the ETF would need to sell treasury bills and reduce the number of outstanding shares by this corresponding amounts. So that would be in a nutshell how these treasury bill ETFs work. And these are much more popular instruments now in this whole broad theme of money market ETFs. It's like these fixed income, T-bills, Fixed income, T-bills, GICs, money market ETFs were very hot as products over the last 12 months and probably since rates got to a respectable amount in terms of getting a yield. And not a lot of people know how they work. You know exactly. Yeah. And I don't mean operationally because you and I don't even really know how these things, how the actual plumbing and the inner workings of how they operate the ETFs. That's not what I mean

because I think that's another complicated subject in itself. And you don't really have to know that. But the actual asset that you're owning, how they work. Just the same way we stress so much about how you have to know the inner workings of a company to be qualified to be a shareholder. That's kind of your job. And with these products, I hold that same theory for investors to be at least aware of what they're doing and and why they're doing it yeah exactly at least the inner holdings like obviously you know what you need to know like this that pitch or the elevator pitch you're giving to someone to invest in these would just be like look they are backed by you know the Canadian or the U.S They are short-term, which means that they won't fluctuate

with longer-term rates, so there won't be any capital fluctuation. It'll just basically, because they roll over so frequently, it'll be based mostly on what the ongoing rate is for the Federal Reserve in the US and in Canada. So I think that's in a nutshell, and it's traded on the stock market as

an ETF. That's what it is. Let's talk about what I'm calling a stock picker's market. So Simone, last year, I think the narrative and myself included guilty of this narrative that the consensus on the street and the consensus among the investing community has been that if you didn't own the magnificent seven, those seven large cap tech companies that just dominated the market last year, names like Nvidia, Microsoft, Google, Amazon, Meta, Apple. Am I forgetting anything? Tesla, I think.

Yeah, just think big tech. Big tech. Big tech, the trillion dollar and almost trillion dollar tech companies that rule the US market these days by market cap weighting. market cap weighting. It has been the narrative and now consensus that if you didn't own them or didn't just broad basket the US market, there's no way you outperformed it. There's just no way. And I wanted to dig into that a little bit. While those companies, of course, had a banner year, they had a year to remember. It's just simply not true that there wasn't a lot of other companies that had monster years. And so I ran a screener. I went on to FinChat.io. I went on the screener. By the way,

this is 100% free. I set the screener criteria of at least 10 billion in market cap. So I wanted it to be that because there are large caps that have done well. So over 10 billion in market cap, and they returned in the last 12 months, at least 25%. So 25% or more during that timeframe. There are 181 US listed stocks that meet that criteria, which is far more than I was expecting. So that's why a lot of stuff went up, right? And I just ran the screen again, because I was curious, like, let's now include US and Canada. So now that number is 191. If you do globally, 250 stocks globally are over that 10 billion in market cap and had more than 25% returns that year, like, you know, AKA beating the market. And so it's actually not even really about the screen. It's about doing the math for yourself. When the screener is so easy to use and available,

busting these kind of narratives and things that people just comfortably say on the street versus actual math and performance and doing that for yourself is more powerful than the actual narrative. And the reason I think that that's important is investors follow herds and they just start saying things that are maybe not even actually true because everyone's saying it. It's like, you can't get fired for buying Intel, HP, Dell back in the day, those have been not fantastic stocks to own over the last two decades, but you couldn't go wrong with owning them. You couldn't lose your job if you're buying them for clients because everyone was doing it, right? And if everyone's saying something and

everyone's doing something, that's actually probably a good time to take a look and do the actual work instead of just following the crowd. Yeah. Yeah. And you can go, like, there's some obvious trends, but one that comes to mind is, and there's still some issues, right, with these companies. But if you think about office real estate, there was a point, I don't know if it was about six months ago, but there was a point where the valuations were just like so ridiculously low. It was so bearish. It was incredible. Like it was everywhere. And if you started a position in that, even if it was a shorter term position, you're just looking for the sentiment to get a little less bad. You probably would have made like 25, 30 percent on just these

office reads that yes uh longer term they may face some issues but short term the like you know there was headlines everywhere right like there was no one is ever going to go in the office again san francisco's a ghost town you know there's what like 15 occupancy i'm exaggerating but you saw that everywhere and that just goes to show that sometime going over, going counter the sentiment. So being a bit more contrarian can really have some positives there. And this is your advantage as a self-directed investor, right? Especially if you're managing your own money, you're not constrained. You don't have to answer to anyone. You don't have to send them your monthly statement and make them feel good and wine dine them.

You have ultimate flexibility and professional investors who are managing money for their clients or running a big fund, they don't want to have to deal with telling their clients, don't want to have to deal with telling their clients, by the way, we're going into office real estate, the most hated sector in the world right now. And maybe like in the last 10 years, I can't think of anything that was hated as much at that. And like what you're talking about with a catalyst, you actually don't really need much of a catalyst because it was so bearish. People have to just go, okay, the world's not ending and the sentiment's a lot better, right? Like, okay, maybe people should occasionally be in an office. No, I think that's a good call. Yeah, and there's a famous scene in the big short, right?

I think it's Michael Burry just basically tells one of the fund investors, one of the primary fund investors that he's shorting the housing market. And that's the opposite, right? It's a contrarian take and the investor is just losing it because like why would you short the housing market and that's the opposite right it's a contrarian take and the investor is just losing it because like why would you short the safest asset in the world you moron yeah exactly it's at all-time highs like why would you short it everyone's like bullish on that so that's that kind of shows whenever everyone is in one direction or another to me like the more i get experience the more it's a signal that there might be some really good investment opportunities. And sometimes you have to think a

bit less in long term, right? You have to think maybe on, you know, four or five, six month to one to two year period, because, you know, some office real estate, I come back to that. But, you know, I'm not sure there are a lot of them you'd want to necessarily own extremely long-term, but there's always place and depends what you're looking to do. Obviously, I know you're a long-term investor. I'm mostly a long-term investor, but if I do see something that's really out of whack and I think there's a good opportunity, I'm also going to jump on it. Yeah, well said. I'm also going to jump on it. Yeah, well said. can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an

award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products.

I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away.

Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. All right. You have one here, which I think is timely as the year rolls over here. Yeah, so I will give props to Rob Carrick from the Globe and Mail. So he had a column about TFSA room when you log in on your MyCRA account. Now, the real issue here,

it's really an issue if you're very close to your contribution limit or essentially at your contribution limit from one year to the next, which I know some listeners are. I know I'm pretty sure Dan is. Dan Kent from The Thursday when we record the news and earnings. Now, when you go on your MyCRE account, you'll see the available contribution room displayed. Whenever you go, you'll see it, whatever time of the year. The problem is the room is based on the information that the CRE gets from financial institutions, so banks, brokerage, and so on. Insurance companies sometimes, too, will offer some TFSAs with group saving plans,

and they'll have to send that information. However, they have until the end of February to do so. So some financial institution will have sent it already, some it'll be closer to the end of February. So what you're seeing right now is just incomplete information, and it can be really misleading if you're looking at that room

and think that's what you have available, especially if you're really close to your contribution limit from last year. Obviously, as well, if you have like $50,000 in contribution room from last year, I think you're pretty safe to say that you can invest a decent chunk of money without worrying about the penalties. Because if you do have penalties, they're pretty salty. You'll get, yeah, you'll have to pay 1% per month for the over-contribution. So if you've over-contributed, let's say $5,000, it's still 50 bucks a month until you remove that contribution. So that can add up pretty quickly. So what I would say to people in these circumstances is, first of all, track all your transactions.

So if you have multiple TFSA accounts, you know, you could have one with EQ Bank or a sponsor. You could have one with your brokerage account. Just make sure you track all the transactions that you incurred last year. Reconcile that yourself, and then you'll know whether you have enough room or not. The other way around, if you have way too many TFSA accounts, you could just look at, say, what's new in terms of new contribution room this year. The $7,000 that everyone gets, just put that. And by doing that, you should be pretty safe. And apparently, if you wait after the first four months of the year, when typically at the end of April, early May, the CRA should

have all of the transaction from the previous year. So at that time, you should have a pretty good idea or it should be pretty accurate of what your contribution room was as of January 1st, 2024. It's like one of those things when you first start doing your own taxes and you're like yeah wait so i have to figure out what i owe you but but you already know what i should owe you and you're gonna get mad at me if i don't pay you the right amount so why don't you just tell me what i owe you they'll know they'll know in july so they'll let you know if you didn't send the right amount. Because it happened to me once where I left my old employer and I forgot one of the tax slip, like T4 RSP slips to include it. And obviously, they got it eventually. So in like July or August, I got a letter from the CRA saying I owed an extra, I think like five or six hundred dollars in taxes or something like that.

Yeah. Oh, man. Yeah. I really wish it was just like updated live, but it's not too hard to just keep track of it. Because once you set up the tracking once, then it's really easy to kind of like figure it out moving forward. Oh. Yeah. You said, I wish it was updated live.

I'll tell a quick story about how the CRA can be really archaic in doing things. So everyone knows I work in pension. And some pension plans will actually allow higher earners to go over the contribution limit. It's called the compensation retirement agreement. So sorry, a retirement compensation agreement, an RCA. So it's a special arrangement that you have with the CRA. And essentially what you have to do is every money that's contributed towards there, you have to send 50% of it to the CRA and they safekeep it until the person retires and starts drawing on the money. And then they get the taxes and then they refund it to the employer.

But that payment, you can only mail it, go in person to a big bank or fax it. So and you have to respect some tight deadlines at the end of the year. So it's always a really big pain to make sure that they get it on time especially you know if you're trying to like you know ideally you'd think there'd be like a way to wire these amounts but no like it's really archaic the way of doing things i'm not surprised that a lot of stuff takes a whole lot of time to be done at this year because i've seen it and these can be like pretty large amounts too that you have to send to the CRA. Like I'm talking about like hundreds of thousands or millions of dollars, depending on how large the employer is and how large the pension plan is. Are these people working in

like an eighties wall street floor with no computers and no, uh, no screens, just, just phone calls and even, and a snail mail. Like that that's that's all they have i don't know it's like were you like what was it like dos or something back in the day like yeah ripping lotus notes yeah and if you're young just google it you'll see what i mean you're basically like you have to basically prompt commands it's the terminal to work work the computer. Yeah, that's it. Okay. Which is a skill in today's world with being able to actually use a terminal. If you're a skilled developer, you're not even like all your file management and stuff, you just type in. It's next level watching these people.

All right. Let's talk about the 70-20-10 rule for stock performance and why I think that it needs modification. And my proposal for what I think actually should be this rule based on math. So this kind of 70-20-10 rule for stock performance, I forget exactly who came up with it, but it's been around for a long time. it, but it's been around for a long time. It basically states that 70% of how a stock does in one year is based on how the market does global sentiment. So basically saying like rising tides raises all ships or inversely, like how the market actually does can affect how your stock does more than that individual company's performance. 20% about how that industry does. Okay. So now we're looking at like 90% of it already in the short term of how a stock does is basically just

based on macro and only 10% of the company's fundamentals and valuation change. And then in 10 years, you invert it and you basically say 70% of how the company does. And then the remaining 30 are based on the market and industry trends. Now, I do think that in theory that this is correct. And if you look at return decomposition, it's not enough time for the fundamentals to be needle moving. You know, a company reports four quarters, if it's well covered, there's already estimates kind of built into that.

And so you get some kind of glimpse of efficient market, maybe, maybe some sort of glimpse. But in 10 years, you're looking at, you know, mostly about the company's actual fundamentals, growth and performance. And in fact, revenue growth is the long-term one factor that has the most impact on return decomposition. So that is sales growth. Now, I'd like to modify the rules because in my view, you have to split out fundamentals and valuations in two different buckets

because valuation multiples on a company matters a lot in the short term. And 10% is, that's just not right. And I'm going to tell you why. Let's look at a real life example. Simone, these are two of the most insane looking charts of all time. And they are from none other than Meta Platforms, aka Facebook. So since December, so December quarter ending 2020, so Q4 of 2020, down to the fall of 2022, the market cap of Meta went from around $750 billion to over $1 trillion and then proceeded to fall in one year down to around $250 billion in market cap, a third of its valuation. Then has now, since then again, another year rise up to nearing again, 1 trillion in market cap, around 960 billion in market cap.

So the stock dropped 76% from September 2021 to September 22, and then back up to where it was before. So you had basically the multiple get cut in third and then back up to what it was before. It's remarkable in such a short period of time. And so this is not uncommon, Simon. For a mega cap like Facebook, it is very uncommon and very surprising. And there's going to be some sort of business case study about this fact here, but it's more common than people think. And so I look at the 70-20-10 rule and I think the 10% on valuation and multiple changes in the short term, it's just not true. According to MSCI for global equities, in one year, 51.1% of returns come from multiple change. So in that example there from meta, from going like 29 times earnings to 13 times earnings. The orange is top line sales growth.

So that's 37.5%. And then around 11.4% comes from dividend yield. So this is for equities across the market. So you get around 10% comes from dividends, 40% return to composition comes from top line sales growth. And then the valuation change is more than half. You go out 10 years, now valuation change is only 20%. The top line sales growth is 60%. And you get 20% comes from the dividend yield of the market. So this is more in line with what reality is. And this study shows it with graphs. So a lot of short-term movement happens in valuation change. In 2021 through to 2022, Simone, what stocks got wrecked, would you say, during the 2022 drawdown? Just high growth stocks in general. High multiple stocks, right? Yeah, I was just going to add, like the case of Meta, that one's a bit interesting because that was related to like the Apple opt-in privacy option where people might be used right now.

Yeah, and the Metaverse. So those two things together. So the Apple thing was now users have to opt in to be tracked on their phone by an app. And then obviously the bets that they're making into the metaverse. Yeah, those are the two things that the market didn't like. Right. And so sentiment changed rapidly

and the multiple fell off a cliff during that time. So that's right. The things that got crushed were text growth stocks trading at like 40 times sales drop into 10 times sales. You know, the math alone there, if all stays equal, you lost like 75% of the value of the equity, right? Well, don't forget regional banks and government bonds that are long-term.

We'll throw that in the basket of a lot of a lot of shit yeah exactly those were just delayed slightly yeah yeah but for the most part right like the one that came to mind to you first is right which is those those high growthy high multiple stocks that got wrecked so here's my my proposed modification 60 30 10 is 60% how the market and sentiment are performing. 30% the sentiment on that specific stock and industry, like my meta example there, that's going to rapidly move the multiple. So this is kind of like multiple change. And then 10% fundamentals and performance of the company financially, which is not a lot. I agree with that. I am a fundamentals investor, but I know

that there's a lot of outside factors and macro and sentiment that are going to move the stock far more than fundamentals. However, in the long term, 60% fundamentals, 30% the sentiment on that stock or industry, and only 10% the broader market and macro. So what does this do? It flips what is in and out of your control, which makes long-term investing so advantageous. If in that first 12-month example, I just said that roughly i believe 90 of things are completely out of my control but you flip that to the long term now you got 90 roughly ish percent are in my control in terms of the decision makes the decisions that i make the game goes from everything out of your control and mostly luck

to now long-term, most of the results are defined by my decision-making within my control, within my circle of competence. And that's what makes long-term investing so advantageous. You move everything like an event diagram of what's in your control versus what's out of your control all the way over into what's mostly what's in your control versus what's out of your control all the way over into what's mostly what's in your control. Yeah. No, I think that's a good way to see it. And obviously, when you look at short-term sentiment for a given stock, for example, or industry,

may be so bad that it will almost supersede anything else. And I think that the meta example or even the office real estate example i think those are really good example where like sentiment is like it's so bad like you see it it's pretty obvious in hindsight but it's pretty if you pay attention you can spot it pretty easily in the moment too you can just see like mainstream media has headlines on it. You, Fintwit is all about it. All these different things, you see it happening in real time. And to me, that's always gonna be the biggest cue

in terms of using sentiment to my advantage, but I agree with you longer term. And that's why it's really good to be a long-term investor is that fundamentals kind of override that. But as I get more experienced and a bit older, I definitely, I think I'm going into a little bit more of a hybrid approach, but still more of a, I would say probably like 80%, more of a 80, 90% long-term investor. But I'm giving myself a little bit of

flexibility if I really see some good opportunities that could be a shorter term. bit of flexibility if I really see some good opportunities that could be a shorter term. And to add to that, I just went on FinChat and looked at totally monthly active users for Meta's family of applications. During that time, they went from around 2.5 billion actives to over 3 billion active. So a gigantic portion of the population on earth. And it's like, people are still using these apps more and more and more, especially in emerging markets like India. The growth was explosive on daily active users across their applications. Instagram had become a cash cow like none other and probably worth the entire market cap at that time alone. Easily, actually. If it was 250 billion market, Instagram was easily worth more than that entire

market cap. And so you zoom out, you put those all together, you don't know what happened to the stock price. And you think that probably it would have performed similarly like this growth of the users. Nope, absolutely not. The Apple problem compounded with Zuckerberg continually letting you know he's going to spend all the free cash flow on some moonshot metaverse product. And the market says, it doesn't matter if you're growing. if you're going to incinerate all our capital, we're going to sell off the stock. So I understand both sides of the coin. And it's an interesting case study. I do think that there is a really cool book that could be

written about meta during that 16-month period. And just like a case study on business and a case study on a founder CEO going gung-ho on the capital allocation and being persistent among Wall Street and putting his back up against Wall Street. Yeah, I mean, you can get some really good things on the founder-CEO front, especially when they have control over the company. They have free reigns, and I'm not a fan of Mark Zuckerberg.

If you've been listening to the podcast for a while, you know I've been pretty critical about him, but I'll give him props where it's due. He's definitely, when he has something in mind and a vision in mind, no matter what people say, he's going to go ahead with it. And, you know, for the most part, it's worked out pretty well for him. So I have to give him, I have to give him props. And one that comes to mind, that's a bit like that, that got criticized, but now a bit less is just michael saylor in micro strategy buying bitcoin and putting on the balance sheet so he got criticized a whole lot but he has the ability to do it i can't remember the exact voting structure but i

think he has like and correct me if i am wrong if people know i just don't have it in front of me but i'm pretty sure he has like super shit like you know super voting shares where it still gives them control of the company without necessarily owning more than 51% or owning 51% or more. Right. Yeah. And so, it's the bull and the bear case for these types of companies with these visionary leaders that are willing to make decisions against the grain. That can both be a blessing and a curse. decisions against the grain, you know, that can both be a blessing and a curse. Yeah. And one segment I want to do in the next couple of months is, I don't know if you thought about that, but I started doing some quick calculations on the fact that the spot Bitcoin ETF got listed in the US and a lot of people were using micro strategy to get exposure to Bitcoin.

So I've been starting to track essentially what the value of the actual business is and how much it's been fluctuating when you zero out. Because people were just buying MicroStrategy's balance sheet. They weren't buying the income statement. Exactly. So it's been just in a matter of a week, it's fluctuated by like 300 million from like 800 million to 1 billion and then so on so i just want to see no in um in value so essentially what i did my calculation is i zeroed out the bitcoin the debt on the balance sheet and then whatever was remaining to me is kind of what the market is

placing on the valuation of the actual business and that has fluctuated a whole lot, which I think it'll be a fun exercise because if you really are interested in the business and you don't mind the Bitcoin exposure, there might be some opportunities to get the business on the cheap in the future if there's really an outflow of the people that were using it as a proxy for Bitcoin exposure to now spot Bitcoin ETF. I think it's entirely people going for the balance sheet. Like, I don't know a whole lot about the original business, but I know it's legacy tech that has lots of churn and no growth. Yeah, I mean, I think it's, yeah, I think I agree. For the most part, I have to dig more in the business. I think it's a bit better than people give it credit for, but yeah, it's definitely legacy, but they seem to be evolving with the time,

but the growth is definitely not massive. But that'll be another segment, but just a little preview. I, you know, sometimes you get into rabbit holes and start looking at stuff. That's kind of what I ended up doing. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using

Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense, and with them, you can buy all North American ETFs, not just a few select ones, all commission-free, so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money.

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

It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at Airbnb.ca forward slash host. That is Airbnb.ca forward slash host. Now we'll go on to the last segment here that was actually planned, not impromptu like I just did. So why I started the position in Tourmaline. So the ticker is TOU.TO. So I'm just going to give a overview here. I'll give some more information for our Join TCI subscribers when I do the monthly update for the full reasoning behind it.

But at a high level, this is why I did it. So the main reason I started the position here is that I wanted to have more exposure to the oil and gas industry in my portfolio. I already own Canadian Natural Resources and they do produce some natural gas. I'm well aware of that but it's not a major part of their business compared on the oil portion. part of their business compared on the oil portion now tourmaline is the largest natural gas producer in canada so definitely by doing that i know i'm getting more exposure to natural gas and natural gas prices are quite low right now after spire spiking when russia invaded ukraine at the start of 2022 for you know in case people are not aware essentially russia is a large producer natural gas and they were sending that over to europe so clearly with the tensions and the invasion of

ukraine it really spiked natural gas prices and what's putting downward pressure on gas prices right now is the fact that europe is expected to have a warmer winter, which should lower natural gas demand as being one of the largest consumer regions in the world of natural gas. According to the International Energy Agency, so the IEA, worldwide natural gas consumption has more than tripled since the 1970s. It has also increased by more than 30% since the early 2010s. increased by more than 30% since the early 2010s. The consumption has definitely plateaued a little bit in recent years since 2020, but I think that's going to be a more short-term thing as long as production and distribution, and distribution I think is key here, is able to keep up with demand. The reason why I think it's short-term is because there's going to be more of a push-convert coal fire plants to natural gas plants. And I know you're more aware of the process than I am here for converting those.

But that's essentially because natural gas is a much cleaner fuel than coal is. Now, before I continue, anything you wanted to add? No, I'm just kind of educating myself a little bit more about the business, even though I know it's a 20 billion and market cap company here. It's not ones that I look at a lot, but I know a lot of really smart people that think that this is one of the best assets in the space. And so, well, I like a lot of smart people and now including you. So I'm just kind of diving into that right now, both with what you're talking and on FinChat with some of the KPIs and the income statement here.

Yeah, yeah. And feel free to add some at the end. So from what I've read, natural gas emits around 50% less CO2 emissions than coal. And we've seen a pretty sharp increase in coal production, at least in the last year, the year and a half, just because there's for a lot of countries, there's not really other alternatives right now. And to me, it's just a low hanging fruit, right, to be able to convert these to natural gas. I know natural gas has had some bad rap for people that want to reduce global emissions.

But at the end of the day it's actually a much better option than some of the the things we're using right now and because of the potential for future demand and the current low price of natural gas and geopolitical conflicts of course the russia ukraine conflict i'm thinking here i think there are big tailwinds for natural gas and that term line is really well positioned to capitalize on that and return more money to shareholders mostly in the form of dividends now speaking of dividends they pay an increasing dividend of zero of 28 cents per share it's a quarterly dividend so it yields just shy of two percent right now. And they have a 13% payout ratio for a regular dividend. And I'll put emphasis on that regular dividend because they also have had a recent history of paying a

large special dividend. However, I'm not factoring that in because special dividends that we've talked about that before, these are, you know, not guaranteed, not that, you know, regular reoccurring dividends are guaranteed, but special dividends especially. You should not expect these on a regular basis. I'm not putting my thesis on that. That would just be a little bonus here. And I actually really like the fact that they do the special dividend strategy because it gives them way more flexibility. The market puts less emphasis on a super high dividend yield and putting pressure on management to keep that dividend and not cut it. So I really like it. I mean, Costco is a good example. They do that special dividend every three, four or five years.

I can't remember the exact interval, but they do do that. And the last reason why i really like termaline here is that they don't have much debt on the balance sheet they reduced it a couple years ago so i think it's a really big advantage for them in a higher rate environment and they just generate tons and tons of cash flow and obviously they will pay from what i've seen they tend to pay the special dividend just based on what the free cash flow is so that's a very reasonable approach i think i actually wish more companies would do it that way where they don't tie themselves to high and safe unsustainable dividend that's the best dividend policy that i've been praising that dividend policy for a long time where it's like,

we pay a conservative growing dividend with a low payout ratio on our free cashflow. And when we have a ton of cash sitting on the balance sheet that we are not able to deploy fast enough, instead of having to pay that out for like, instead of paying that to you over the last eight quarters and putting our business in a position we don't want to be in, because we are a cyclical company. We do it when it makes sense. And when it's this is a win win for the company, it's a win for the investors. I think that that's that's the the best dividend policy. So I've just been kind of doing some digging here because I was really curious about natural gas consumption by sector. So today, 2022 for the US, we have, yes, we see since the 50s all the way through to now, natural gas consumption has been

certainly on the rise. And it is cyclical. There's no doubt about that. You have long periods of drawdowns and then it comes back. But if we look at it here today, it is electric. This is largest to smallest. Electric power, industrial, residential, so heating, and then commercial, and then transportation. and then commercial, and then transportation. Okay. So you got power, and then industry, and then buildings, and then transportation. So that's it in order. Now, I honestly thought buildings combined was going to be more than electric power, but they're very similar combined. I'm very bullish on the increase of, especially in the US and globally, not in Canada, but outside of Canada, essentially. I'm very bullish on electric power consumption of natural gas in the next 10 to 15 years and very bearish after.

and very bearish after. So I'm flip-flopping between I know that it's going to get a lot higher before it becomes a lot lower. The reason for that is Canada has mostly, mostly with an asterisk, pivoted away from coal-fired power plants and move them to natural gas-fired power plants, combined cycle plants as replacements for mostly peaking power, depending on the province. That is baseload power in the US, and there's still a ton, a ton of coal. Depending on even where you are, most of the grid is coal. Think of Texas, Tennessee. I'd have to look at the long list, but there's a ton of coal-fired power plants in the US and broadly in the emerging markets big time. So those plants, a huge, huge priority is to switch them to natural gas-fired combined cycle baseload power plants.

So that's a huge tailwind for the next like 15 years and a potential existential threat after it. That's really hard for me to think about and like really hard to kind of value and project into the future. So that makes for an interesting predicament. Yeah. And one, like the driving factor with me investing in that is, yeah, I think there's definitely at least the medium long term, maybe not the super long term. I think there's some really good prospects. And I just think the market is overly bearish on the price of natural gas right now. I mean, it's almost at historical lows. And whenever you have historical lows for commodity like this, I mean, if you have a long enough time horizon,

there's a good chance that it will turn around and go up just based on the pattern of consumption for the world. And I think I'm pretty in agreement with you when it comes to that. I think when you think probably more than 10, 15 years down the line, I think a lot of at least the electricity generation will be taken offline in favor of nuclear. I think we're really, I think nuclear will be eating a big chunk of that.

Obviously, I think there's wind, there's wind, solar, all other kinds. Maybe there's going to be progression in geothermal to power plants. I know those are still technologically. I think there's some issues with the drilling to get deep enough to be able to get enough heat to make those available at a wider scale. But then again, I think, you know, probably the next five years, I think it's a really good bet in my opinion. And I'm trying to equal weight my bet between Canadian natural resources and Termaline to have some exposure to the price of oil and natural gas. I think those are probably two of the best assets when it comes to oil and gas in Canada. So I think you're in a good spot there.

You know how I feel about commodities. I hate the lack of pricing power. And I hate the fact that I have to get two things right. I have to get the over the next 25, 30 years, which is kind of a straight, because those two numbers, you know Asia, including China, Middle East, Africa, Americas, it seems to be going up in one certain direction. So maybe that is a little bit easier to map out. Yeah, exactly. So, I mean, that's my thesis behind it. Obviously, I'm not like putting, you know, it's not a 50% allocation or anything like that. It's a still a relatively small allocation, but big enough that if it does pan out, it'll do quite well. It won't wreck me if it doesn't. And I think it's a good balance to

my portfolio. I think that's really the way I see it is trying to balance out and having some exposure to certain commodities like this to be able to have a resilient portfolio in different kind of environments. So that's really what I've kind of shifted in the last two years. But again, I've said it time and time again, I'm still predominantly in equities. So clearly that will be driving most of my returns. And these are equities, but they're commodity equities. So they'll be more driven by the price of their commodities and obviously how well the business are doing. But I think these are two of the top names when it comes to natural gas for tourmaline

and Canadian natural resources for oil production. We'll wrap this up. But my last comment here is I am now looking at the dividend history on the chat and the thing that you sent me the quarterly they move that special div a lot more like pretty frequently like almost yeah they do every year basically but you can see that you know when prices spike because of the russia invasion in ukraine that obviously the price of natural gas spiked and their profits and free cash flow also spiked so they had it i think what like around two dollars yeah a couple times or four times in there three four times and now last year was down to a dollar so that's why i'm saying look i just

see it as a bonus it's been pretty frequent in recent years but even the fact that it's been frequent i mean it went from two dollars to a dollar so you can't really i think you just have to be careful counting on that special dividend and just see it as like it's the same thing as if you have a job right and i know most people don't do that but if you have a bonus tied to your performance i think it's best to always see that as an actual bonus, not as guaranteed income. I know a lot of people kind of embed the bonus in what their salary is. I always find that a little bit dangerous myself.

I try to forget about the bonus, see it as what it actually is. Maybe I'm just too conservative. I don't know, but that's how I see things. I really want to see more public companies adopt this dividend policy. This dividend policy, the Costco dividend policy. It just makes too much sense. Yeah. It just makes way too much sense.

I think more people should adopt it. Thanks for listening to today's show. We really appreciate you. We are here Mondays and Thursdays well simone's here monday this thursday yeah yeah yeah and as you were saying that the dividend policy i'm like we're talking about you intel but yeah yeah take notes folks yeah we're here mondays and thursdays uh simone's here mondays there's i'm here Mondays. Dan Kent is with Simone on Thursdays. And if you're somewhat new to the show,

I was thinking about this yesterday on the plane. If you're somewhat new to the show, well, welcome. Happy you're here. We get a lot of new listeners, typically at the beginning of the year. And we have the Canadian Real Estate Investor Podcast Show, which you can go type into your podcast player

and put that in. That's hosted by another Dan and Nick, and they're doing a great job over at the Canadian Investor Podcast. And the rationale now for having different hosts on this show is there is two different styles of show. There is a news and earnings that comes out on Thursday, And there is a kind of, you know, what you heard today, you know, more kind of evergreen type content that comes out on Mondays that I enjoy quite a bit more. So pivoted over to that. And so, yes, if you are new here today, that gives you kind of a lay of the land of all the content we're producing with the real estate show and the two different styles

of shows on this podcast feed. And of course, if you have not smashed that follow button or given us a rating, you can give a nice dopamine hit to our hosts for the low price of $0 by subscribing and giving us a show rating. Yeah. Yeah. It really helps us out and boosts. It makes us feel good as a bonus. Yeah. Yeah. Dopamine hit for the cost of $0. Hey, that sounds pretty good. We'll see you in a few days. Thanks for listening. 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.