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Announcer: 00:00 You’re tuned in to the Investing for Beginners podcast. Finally, step by step premium investment guidance for beginners led by Andrew and Dave to decode industry jargon, silence crippling confusion, and help you overcome emotions by looking at the numbers. Your path to financial freedom starts now.
Andrew: 00:36 All right, so we have Braden Dennis on from Stratosphere Investing.com, remember Braden have had. He’s basically Canada stocks expert, so I’ve had him on the show before. We had a good discussion about FANG stocks and some of the evaluations that he was seen with Canadian stocks at the time. We also had some listener questions about Canadian stocks that he was gracious enough to answer and we shared some of those on the podcast as well.
Andrew: 01:04 And now, you know, we’re trying to a, make this episode as something where it can be a complete star, the guy for some of someone who’s in Canada looking to invest in Canadian stocks, looking to invest in the Canadian market and B, for those listeners who aren’t Canadian, we’re going to dig in maybe at the end if we have time. Uh, I definitely want to dig into at least a couple of Braden’s buy and sell rules when it comes to buying stocks. I think there’s some good discussion in there and a lot of it aligns with a lot of the things that I like to teach and the things that I think people should look for when they’re buying stocks. So that can definitely give insight for people kind of seeing different ways that maybe people approach stocks and how it can be similar and how it can be different. So Braden. Thanks for coming on today.
Braden: 01:58 Hey Andrew. Yeah, no, it’s a pleasure to be here. It’s been quite, quite a ride since I started investing and reach out to you several years back now and uh, yeah, no, I do feel like things have come so far and I’m going to continue to learn and continue to grow and at the end of the day that’s the best thing you can do. And, and uh, yeah, no, I’m happy to help Canadians. I think they’re a bit underserved overall. Like there’s lots of information online for American investors and at the end of the day, Canadians pay some of the highest management fees in the entire world and that’s a real shame because we don’t have a whole lot of options. So I’ve kind of created a, you know, a two step process where if you are a complete beginner, the first scenes to do is get out of paying for extremely expensive active management and go to an index approach.
Braden: 02:51 Founded by John Bogle, who he died yesterday. It didn’t me, Jesse, that, which is really, really sad. He is the founder of, he’s kind of the father of index investing. And for most people, this is, this is something as a Canadian most Canadians should be doing instead of any, any other type of strategy because one, we pay the highest fees and two, this is the easiest way for us to own international funds. So at the end of the day, Canadians are very, very heavily concentrated in Canadian home bias. And there’s lots of articles they can read on this. And statistically, I know, unfortunately our market has underperformed. The American S&P for a variety of reasons, but it would be silly to not be exposed to international and especially the US economy. So this is a quick win for anyone to quickly grab international exposure for fees that are, you know, almost free with black rock and vanguard continuing to do it. Okay. Now the other kind of prong to that is if you are already doing that, you want to know, have a rules based strategy of selecting businesses that you can outperform the market with. That kind of combined a strategy that I use, which uses value, growth and dividend income altogether. And I know Andrew, you’re big on this too. People tend to put themselves in an investing bucket. I like to combine all three and that’s where I find the most success.
Andrew: 04:30 Yeah, a hundred percent Buffett says himself. He doesn’t think that there’s value investing without growth. And if you look at the kinds of stocks he buys, it’s almost exclusively dividends. Stocks. I think he’s kind of quietly in that camp as well. Before we get too deep into that, try to give us some context because, you know, we, we hear fees and some of the, as a beginner, they might see fees and they might see something like a percent or two and that might not sound like a big deal, but when we’re talking about retirement, how can you know, what’s, what’s, what’s the big picture here on fees and why they could be so destructive to your returns?
Braden: 05:14 Absolutely. Yeah. This is a topic I harp on so much because the average mutual fund in Canada costs investors $323,654 and fifty cents over their lifetime of investing with a, a big study that was performed. So I looked at that and compared it to index funds, which I teach in a course called how to start investing with a thousand dollars. Um, and I found that over a lifetime over a lifetime of investing in the market, you know, at 10 percent compounding your wealth, you can be looking at around one point $5 million dollars in wealth that you accumulate by retirement only by maxing out what is called the CFSA contribution limit, which I believe is like the similarity to a Roth Ira IRA in the states. And that’s just maxing that out at a $60,000 a year compared to a mutual fund where you’d be at $567,000. So that’s a difference of a million dollars, pretty much only because of that two and a half percent fee on the top. So it’s amazing how much those fees can add up over a period of time. Um, and how much that can affect your compounding.
Andrew: 06:35 That’s incredible. You know, you think about retirement, hopefully by the time we have 45, 55, 65, we’ve accumulated a decent amount. You know, you, you started talking about dollar amounts that are in the hundreds of thousands to hundreds of thousands. A, you’re talking about thousands of dollars a year and then when you factor in compound interest and how much you’re losing, how much potential gain that these stocks and investments can make for you. It’s a huge deal. That’s crazy. I’m glad you gave us some numbers there. A wow.
Braden: 07:10 Yeah. And that’s only maxing out your TFSC contribution limit. There’s other, you know, non taxable accounts that you can put in for tires and even in a taxable account. Um, I hope to be investing more than just that limit every year. I think it’s the first account that people should go to if they’re a beginner as a TFS, say because you’re going to get completely tax free gains. Um, there’s no, not when you withdraw it, there’s literally no tax on the account at all. So if you, if you put that into, you know, now you’re investing maybe $10,000 a year, which I think is reasonable for a lot of people. Two income families who are reasonably saving some money now we can look at those numbers and just basically doubled that. And with compound maybe triple it. So it can really, really add up.
Andrew: 07:58 Okay. So CFSA you’re taking, um, after pope post-tax, right? So you like your income from your jobs or I’ve been taxed and then you’re saying the rest of it grows tax free.
Braden: 08:12 Yeah. Yeah. So you’re going to pay, you’re going to pay income tax, um, and then you’re gonna completely. Everything else is tax free.
Andrew: 08:20 So what’s here in here in the states, the big account that most people have and that they are aware of is the 401k right at your job. Is there something similar to that in Canada?
Braden: 08:32 Yeah. So that’s your 401k is our RRSP, which is a registered retirement savings plan and that is kind of the goto however are the new one is the CFSA that got introduced and I’m just a big fan of it because I wrote a blog on. I wrote a, yeah, an article on my blog the other day about how you can have way too much money. Your RRSP where when you’re withdrawing on it, all the sudden they’ve, they basically, when you turn 72, they make you withdraw five percent of it and it goes up to 20 percent of it every year. Basically by the time you hit 85 or 90, I forgot the number is. And in your retirement you’re going to be withdrawing on this money and you’re going to be withdrawing on it. So much that to do the things you want to do that you’re going to be in the highest tax bracket anyways. So I don’t really see a huge benefit of it other than you can defer tax while you’re working. That’s the huge benefit. And if it’s really comes down to a math calculation, but if you’re someone that’s going to be receiving a pension, if you have a passive income business, um, if you’re going to be receiving income of any kind, kind of later in life, then you’re going to throw yourself into a higher tax bracket anyways. And it might not have been worth it compared to a taxable account,
Andrew: 09:57 or do your employers match for the, um, I can’t remember the acronym.
Braden: 10:06 Yeah, yeah, the RSP. So they do match and that’s another, that’s another way, you know, if your company doesn’t pay a pension, typically then they’ll do a matching program. However, the problem is, is that many times the matching program will be through, you know, one of the big banks like typical Royal Bank of Canada or the biggest company publicly traded on the Toronto Stock Exchange. They’ll manage your money in a two and a half percent mutual fund and you don’t really have a whole lot of flexibility on what you want to do. So people want to manage it on their own. They want to open up in a discount brokerage service. They’re kind of hooped in many cases if they want to do that. So it’s not, it’s not a simple solution when it comes to matching. I mean at the time it’s free money and you. And it really comes down to doing the math on what’s worth it. And my, my basic thesis on it as if you’re young, that it’s better to just compound at a quicker rate now, but that’s just my two cents.
Andrew: 11:17 How comfortable you are with [inaudible]. Essentially the CFSA you can pick individual stocks and you’re saying the, the other one is restrict design. It’s like a almost exact marrying of the 401k’s here and the Roth Iras. Yes. Yeah, you are. The contribution limits are about the same. Are you talking about like Canadian dollars when you, when you said that. Okay. That’s right.
Braden: 11:47 You can buy, uh, the, the other benefit is of the RRSP is there’s an between the states and Canada that you can avoid withholding tax if you want to hold us stocks in your rrsp whereas you’re going to pay a separate withholding tax if you own us listed companies bought and sold in US dollars, uh, in your TFSA, you can run into some tax issues. Um, so that is something notable to add is if you’re going to hold individual securities bought and sold in US dollars on a US exchange than it is recommended. You use your Rrsp, which is the equivalent of your 401k yeah, because the US government doesn’t recognize a tfs as a retirement account.
Andrew: 12:38 Oh, I mean, if people think, you know, obviously you’re talking about the tax brackets. Another downside to being forced to liquidate positions is if you follow a lot of the things I like to preach when we talk about dividend investing, dividend reinvesting, and having these stocks that you buy once and they give you an income that increases every single year for decades when you have to sell it because you’re forced to liquidate positions. Now you’re looking at a situation where this great investment you made 20 years ago that this pain you more income than you paid. You know, now you’re going to have to take that money, sell it, and try to find the new income stream. And that’s not going to be nearly as much. You know, you’ve got to basically start over and find yourself a little three or four percent yield. Uh, instead of being able to keep a stock that you had for a long time.
Braden: 13:29 Yeah. Because you know, for instance, I’ll give an example of a financial company that I do own, I’ve only owned it for 3 years and it’s been a great, great, great growth story and my yield on cost is around 13, 14 percent because they’ve grown the dividend like insanely, um, and they’re still only at a healthy parent ratio, 40 percent. So this business is obviously doing really well, um, and able to grow that dividend insanely. And I like, I kind kinda brings me back to the payout ratio. I know me and you talk about this, this ratio all the time. I think it’s the one of the more overlooked, not discussed a metric when it comes to dividend investing.
Andrew: 14:14 [inaudible]. Yeah. So you kind of touched briefly on that, but you have basically earnings coming in and the more earnings that company can pay to you, whether that’s, you know, a special dividend or regular dividend. If they can increase their earnings every year and even if they maintain the same power ratio. Now you’re looking at a situation where your income’s increasing every year and like you said, a yield on cost. Thirteen percent. It didn’t start out that way. I’m sure when you bought the stock it was probably at three, around three percent, maybe even two or one. Yeah. Grow over time and if they’re able to really have a business that’s just thrown out cash flow, they’re going to throw it back to investors to, you know, to wait three years and get 13 percent on your money and you just don’t even have to do anything. That’s, that’s a pretty great deal.
Braden: 15:06 Yeah, exactly. I think it was trading with a yield of probably two and a half to three percent at the time and still has that, that same yield. So you can see how much the, you know, the share price has appreciated as well. So I mean this is the, these are the kinds of stocks that I look for when, when it comes to screening for dividend growth and revenue growth. Those are my two main factors and growth score. I use something that’s called the SSI score for my premium subscribers and it really heavily weights on dividend growth and revenue growth because as you know, earnings can be a little bit tricky. They move up and down if it’s a business that relies on a lot of macro economic factors and their earnings can kind of fluctuate, but you can kinda see through see through the smoke by just looking at their top line revenue, that’s where all the cash that is going to be entering the business originates and is obviously the foundation of their business. And if, if that’s starting to contract then I’m a little bit worried and I’m going to sit on the sidelines until they can figure out their top line revenue.
Andrew: 16:16 Yeah, they’ll start at the top line. I liked that a lot. That was one of the big selling points for, for revenue and revenue growth and price to sales is this idea that it’s a lot more predictable, a lot more reliable, and it’s a lot smoother than earnings. Uh, just as you said, I know this, do you don’t look at price to book at all? At least I didn’t see it in your buy rules. Is there a reason for that? And uh, maybe we can discuss about price to book a little bit.
Braden: 16:47 Yeah, I do. I do look at price to book, but the, the reason I don’t factored into my SI score is a variety of reasons. I really don’t like being one of those people who put themselves in a camp of a 10 year bull market. And so you can’t value businesses like he used to because I really don’t like that, that train of thought because it brings you into a dangerous area. Especially when a new hype stocks come into play trading at 250 times sales like we had here and the cannabis mania here in Canada trading at 250 times. Sales is just the norm all of a sudden. So I really don’t want to be the person that says, oh, you can’t value businesses like that anymore. But when it comes to price to book, you get a lot of companies nowadays that are so profitable that don’t have the same assets of traditional businesses and not really comes down to I’m a company that makes and develops enterprise management software like a company like open text here in Canada.
Braden: 17:53 They’re a bout 10 billion in market cap and a company that I recently reentered because, I mean, they’re just doing amazing. They’re not going to have the same kind of book, a same kind of equity as a GM would, who owns 46 manufacturing plants in Detroit? Uh, don’t quote me on that number. So the, these are the kinds of different businesses that I put through one general screen and it’s, I find price to book is a very, very powerful metric and it’s something I use very often, but I don’t use it across different industries and kind of paint a, a broad screen into the market and use it effectively like you can with a price to sales or a price to earnings.
Andrew: 18:45 Well, one of the big attractive features of price to book is the exact same thing as price to sales. It’s like I mentioned with the Walter Schloss episode, I’m just the other day we were talking about the super investors, you know, Walter Schloss like to look at assets because they’re a lot more steady and there are a lot more predictable and they don’t move of fluctuate like earnings. So if you’re at least, you know, you’re looking at businesses that create a lot of earnings and a lot of profits and you’re looking for that low PE ratio, but you’re also kind of hedging it by looking at price to sales. And you can do that with price to book or you can do a price to sales. You can do it with a combo. And it’s a great point about these businesses that have different types of assets.
Andrew: 19:32 You really have certain businesses and certain industries and it’s really a capital intensive thing. Some businesses just don’t cost as much capital. You don’t, you know, you buy an airline stock and they have to build and manufacture these very expensive airplanes. You don’t see that with another, like a computer company, uh, another kind of factor into that is a company’s brand, like if you think about, like our Hershey’s, they don’t need much money and their brand is so valuable. People will buy her. She’s just because they like that type of chocolate and so they’re able to keep costs low. They don’t need to carry as many assets on their balance sheet. So it’s definitely a good idea in the sense that there can be a lot of value in a lot of stocks that traditional quote unquote traditional value investors aren’t looking for and you know, by far you’re, you’re looking for intrinsic value, you’re looking for stocks that are trading at a discount to their intrinsic value and you know, you can find that in the myriad of ways and no two investors are going to have the exact same approach. Yeah. I know. I’m looking at, I’m looking at a couple of your other barrels. The obviously recognizable qualitative Mo. I like that a lot and that’s something I’ve been putting more emphasis on a more so lately. And I’m assuming that you can’t put this in the ssi and the keto because it’s qualitative. Obviously you’re looking at stocks that all have good scores and then you’re considering the qualitative when you want to kind of make a decision.
Braden: 21:25 Yeah, that’s right. So what I’ll do is I’ll screen or screen for a whole bunch and then I’ll rank them. But it’s not going to be as simple as the one that scores the highest is gonna be the number one pick. I wish it were that easy but investing is more of an art. And really what it comes down to is all these buy and sell rules are very, very important to not make mistakes. I think that’s the most important part. making mistakes and investing is so, so critical because you can lose way harder, way more than you can win based on the simple strategy. The sImple thing of if you lose 10 percent, you have to gain 11, and if you lose 30, you have to gain a hundred based on how that math works. And that’s what these rules are as to really prevent mistakes happening.
Braden: 22:16 So when that score comes through that my premium subscribers get, it really comes down to a list of what I call my investible universe. So once I have that to a score or you know, companies that have great strong fundamentals and I’ll have a list of 20 or 30 of them, then it really comes down to that qualitative analysis. And really when it comes down to that by buying companies with an obviously recognizable qualitative, really what that means is I have to be able to say in one sentence why they have that. And for most companies, you can quickly in your brain know what it is. I don’t think many companies have to really even explain themselves when it comes to a brand that’s really, really strong, um, that just becomes very obvious and you can quickly quickly say what their moat is in one sentence. And if you have a tough time struggling to define what that is in one sentence or in a few words, then you might have to rethink your analysis.
Speaker 1: 23:22 Hey you, what’s the best way to get started in the market? download Andrew’s free ebook at stockmarketpdf.com. You won’t regret It.
Andrew: 23:34 Maybe for me like more like a selfish question and by the way I do the exact same thing too. Like I’m not looking at VTI. I’m not just picking the lowest one. You know, let’s. What’s the future? What’s the industry look like? Nobody can tell the future, but how are things moving? How do you see a either consumer demand or the way? Kind of the big takeaway I’ve thought of lightly that makes it really simple for me is kind of crafting. The way I’m, I’m moving towards now is is this industry and the product or whatever the service is, is it a commodity or is it.
Andrew: 24:16 I can’t remember what the other word is, but either commodity or not commodity because If it’s a commodity and you’re basically having a race to the bottom where it’s just like an amazon where everybody’s slashing prices until they can’t slash anymore and companies go out of business or is it something where there is a premium and that qualitative mode can be a superior product or some sort of a premium? On the price that justifies why it costs more than a just simple cost and it’s not subject to the kind of supply and demand that that tends to come with, with any product or market. So I think that can be something maybe an easy question. I liked the idea of just asking yourself, what’s, what’s the simple sentence that, that really lets me know that I’m going to go for this. So the question I have for you, um, have you ever, or do you ever think like my sentence is actually the financials for this business are just so much better than it’s competitors because I, you know, I ponder this sometimes and I think, can you do that?
Braden: 25:32 He, yes.
Andrew: 25:33 Maybe market share, I don’t know, like an idea, right?
Braden: 25:36 Yeah, definitely. So when it comes down to looking at those numbers and maybe you know, how they’ve grown their top line compared to their competitor, I try to look for maybe why that’s happening. um, whether it’s management is just executing much better or they’re doing something that the other one’s not. You just have to kind of ask those questions that I’m always kind of asking myself in my head before I make any sort of decision is why that might be happening. And sometimes it’s really easy to know and sometimes it’s not so easy to know and that’s what kinda makes, you know, investing challenging and investing fun is, it’s not always black and white and it’s not always easy. But uh, at the end of the day you can do the right thing enough over a long period of time to win. And I think really what’s what’s come down to is I’ve been obviously studying Warren Buffett and Charlie Munger since I started investing.
Braden: 26:35 I’m like, most people should. And Charlie Munger was the one that really changed Buffet from being a deep investor to buying and businesses that he would hold forever and really have high quality businesses in their portfolio that Berkshire Hathaway has, you know, compounded wealth like no one else ever has. With that kind of formula of, of combining all these qualitative good fundamentals. And then also recognizing what that moat is. And then you kind of come up with a selection of businesses that you think you can win with an over a long period of time, and if you do that enough, um, you’re not going to go completely without mistakes along the way. But if you know, swing at enough good pitches, you’re going to hit a home run at least at least once.
Andrew: 27:30 And that income could be enough to really sustain you and give you enough wealth to make you hopefully happy. I’ll guess I’ll kind of detour like I like to do and just do a sidebar. So I’ve had the same kind of thought process too. I’ve as an example, like I was just doing this the other day with a dividend fortress I had. So it’s like if you have two businesses that are very similar in size and maybe one has half the debt to equity that the other one has, while they’re the same size, they have about the same market share. They’re kind of even competitors. I would say that balance sheet strength maybe isn’t enough to be a moat. That’s qualitative. Obviously from a VTI or standpoint, it would be, but if you have another situation where it’s the same thing except one businesses like three times bigger than the other, then I think that strong balance sheet and that, that strong kind of cash balance or whatever makes up the asset side of the, of the balance sheet really becomes it’s own competitive advantages just from sheer size. So I’ll steer us back. We talked a lot about kind of what you look for when you’re trying to buy a stock. is there anything that kind of throws up a red flag in your opinion or your. maybe you look at a stock and it and it looks really attractive, but then you see this one thing and you put up, put on the brakes and it makes you not want to buy it now?
Braden: 28:59 Yeah, definitely. There’s a couple red flags. When you look at the long-term income statement right away, you’ll see huge fluctuations in earnings. Anytime there’s negative earnings, if the dividend, it doesn’t have a predictable kind of nice to look at story. That gives me a little bit of concern if I’ve seen that the payout ratio has ever exceeded 100 percent, um, if they’ve obviously cut a dividend, had periods of declining revenues because their business might be based on macro economic factors like commodity prices or their earnings are very fluctuating based on a fuel that they require that fluctuates a lot or some type of fertilizer that they need. These are the kinds of things that I just simply avoid. I mean, the best thing about investing is you don’t have to. No one’s holding a gun to your head saying you have to buy company a or company b, even though everyone else might be saying it’s the right thing to do.
Braden: 30:06 The best thing is you don’t have to. So I just avoid those companies that don’t look like a, a story that looks like a high quality business or depends on macro economic factors that I can’t control. My biggest thing in investing is to just focus on the things that I can control. And then with that comes companIes where their future is in their control and not based on things that they really can’t control the price of oil or whatever it may be a commodity that’s very important in their injection molding process that breaks up theIr entire topline, stuff like that. I mean you can kind of see what’s happening in a tenure income statement. You’d be able to kind of come up with a story and really highlight those red flags. But to answer your question simply a high payout ratio and fluctuating or negative earnings, that’s a, that’s pretty much a easy, easy move on moment for me.
Andrew: 31:12 I mean, I mean, you knew you use Netflix, right? So how could you not buy the stock?
Braden: 31:19 You know what, hold on, I gotta go hop on my brokerage account and buy some Netflix because I going to watch them before it go bad. There’s no question. That’s a company with a, with a moat that I think is actually declining a little bit with so much competition coming in. But uh, yeah, that’s, you know, it’s. There you go. It says it’s a company that doesn’t fit the story I’m looking for. And If it’s been really, really good, the shareholders, um, and the best thing you can do is not beat yourself up for going, oh, I knew that, you know, Joe down the street told me he knows everything about stock picking and I should have bought Netflix. I’m okay did not, I’m okay to lose out on that one. You know, it’s the only thing you can do.
Andrew: 32:07 Yeah. Just like you said, a gun to your head. It’s not like, it’s not like us and everybody listening, we probably don’t contribute that much to their bottom line anyway. They don’t even have a bottom line.
Braden: 32:19 Their bottom line goes to fuel, you know, hundreds of stuff that they’re putting out so much content. it’s a, it’s where does that and for me is, is the question I can’t really figure out where, where all the sudden, you know, they’re not putting in all this money for new content because as soon as they do that, I see them, I see them as dead. So, yeah, it just doesn’t fit the story for me. So that’s a good example.
Andrew: 32:49 Yeah, I agree. Like the competitors that they’re attracting are huge. It’s not like just a regular competition that you would get in any industry you were talking about mammoth giants coming in to your space. That’s quite scary.
Braden: 33:03 Yeah. Like Disney and Amazon are not, not to companies I’d want to compete with. I mean they’ve obviously executed on almost every segment of their business since the dawn of time. so who’s to say that they’re not gonna, you know, just steamroll you in this space too.
Andrew: 33:23 So you have your premium product. I’m looking at the page right now. You have the buy and sell roles a year. You got by rules, avoid roles and sell rules. So we’re not going to go through all of those. You also have a spreadsheet that you give to subscribers where it ranks, uh, some of the top stocks with the best scores. I think that’s really cool. I love how you put dividends and come here and you’re tracking how much dividend income you’re receiving every month with your real money portfolio that you got.
Braden: 33:58 Yeah, so all this stats is from the inception of one portfolio started 3 years ago. I’ve only actually started premium as a, as a product just launching this past January. So this is good timing. If, if someone was to start, they’d be a here at the ground level, but it’s, it’s nice to quantify to people, hey, despite what’s happening in the market, this, this money that you see here in dividend income, no one can take that away from you. That’s what you’ve received and really kind of puts the proof in the pudding.
Andrew: 34:29 I like to how you have international exposure and you have some ETFs that you recommend that in addition to your individual stocks. So that’s pretty cool.
Braden: 34:40 Yeah. I, as I explained before, it would be even if I was the best stock picker in the, in all of Canada, it would be unwise to not own some of that international exposure bought and sold in Canadian dollars because of that Canadian home bias. So 30 percent of the portfolio owns us international and emerging market stocks with the most concentration being on us stocks. And then the rest of the portfolio of 74, 70 percent of the portfolio is individual stocks Bought and sold on the Toronto stock exchange in Canadian dollars. So there’s really no, uh, no conversion of currencies at all in the portfolio, stays all in Canadian dollars, which keeps it a little easier for Canadians. I know, I, I think it’d be silly to not own the rest of the world and not own the us economy would be unwise.
Andrew: 35:38 Yeah. That’s good to have exposure. Can’t, can’t really argue against that. One of the sell rules and you don’t have to share if you don’t want to. I don’t know if this is premium content exclusive. No. Yeah, but the, you said, uh, if companies have exceeded, determined the upper limits of valuation multiples. Can you explain what that means?
Braden: 36:04 Yeah. So I was thinking about writing, you know, what each one is, but in the actual spreadsheet there’s a formatting, a filtered automated that are, if a certain, if a certain upper limit of valuation goes to something insane. So if I liked it at a, you know, an earnings multiple that’ll have 11 and I’m buying it because the market hates it and it used to be trading at 24 or whatever it may be, similar to an apple store in the last month or two or it went down to, it’s down to 11 times earnings now if it went back up to 25 and it’s something that I think is expensive, all the sudden I’m okay to lock in profits. I still may think it’s a good good company. Um, and I plan on owning only companies that are high quality. And this would be a case where, yeah, it’s takes the stock I bought was super cheap and the market didn’t like it and now the market kinda corrected itself, it’s reversion back to the mean and it’s trading at a higher earnings multiple again, and it’s something that I might be interested in selling and locking in profits.
Braden: 37:16 So it really comes down to I have upper bound limits on all the valuation multiples where it’ll trigger not necessarily a cell, but it’ll trigger a decision to be made if it, if it will leave the portfolio. But to give you some concepts here, I mean there’s many stocks in the portfolio and I’ve only closed five positions since inception three years ago. So let’s super low turnover and all of them have been locked in on again.
Andrew: 37:47 That’s fantastic. As I can get you to commit to a number for the evaluation,
Braden: 37:52 It is tricky because I will own a business trading at 26 times earnings when I buy it. I don’t kind of put myself in a bubble, but what I do do is the screen that you see there for where you, where you get the ssi score, it won’t even include companies trading at a pe of over 50. Um, so I guess if it really exceeds my screener, then it’s going to be definitely up for a sell candidate.
Andrew: 38:24 Yes. I’ll get into that. I know I’m just putting a gun to your head. I’ll be watching this closely.
Braden: 38:32 No, you know what it really comes down to, if it exceeds what I would even screen to be in part of the investible universe, then then I’ll start thinking about it. I’ll give you, I’ll give you a real life example. So I mentioned Opentext. Core is a, is a tech company here in Canada around 10 billion in market cap, I think around 12 billion now. they, I bought them at a quite expensive because they traded extensively and one day they went up 16 percent on good earnings and I locked in profits that day. I’m three months later, they executed another amazing quarter, but the stock was back down to what I bought it at and I really entered the position so I really almost never trade. But thIs is one that I did trade because it kind of met those buy and sell and rules that we’ve talked about and I mean it’s been very profitable for me.
Andrew: 39:33 It’s a good answer. Uh, I don’t, I don’t have a set number two, I was just trying to see if other to have you have other things that you’re black and white on like cut, dividend payouts, a declining top line revenues. So I’m very similar but that was something I thought we’d have some fun.
Braden: 39:55 Alright. So
Andrew: 40:02 I think people, if they’re, if they’re Canadian investors and they’re looking to buy Canadian stocks, I think they would be foolish not to check out what you’re doing, what you got going on, whether that means you’re an absolute beginner and you need help getting everything set up and you want to look into the course we were talking about earlier. Or if you’re looking into buying stocks, getting stock ideas. I’m having a checklist like you have here, um, and mark market commentary, a real life money portfolio to follow along and track those dividends and, and kind of have just somebody on your team and some of the you can follow along. So where can people go, whether they’re in that first camper, that second camp, uh, if they’re interested in learning more?
Braden: 40:44 Yeah, for sure. If you’re listening to this podcast, you can go on stratosphere investing.com and that’ll bring you to a kind of a easy to follow along pathway on where you are. I’m asking you a few questions based on what you know, um, if you are currently owning a portfolio or not, that’ll be very obvious on which kind of path to go down. And that’s going to bring you either to a premium portfolio subscription that we’ve talked about or a course. And this course really is, it’s $63 and I provide a $50 quest trade commission rebate as soon as you sign up with me. And really what that will do is it’ll take you from knowing nothing, having nothing in the market to having an index portfolio. We started this, this episode talking about, so I’m really when it comes down to that’s a great place to start.
Braden: 41:41 And maybe down the road if you want to start learning how to value individual businesses and try to, you know, have some outperformance in your portfolio. Then you can check out premium and that’s kind of the flow of how things work here. And also you can get the first two modules for free if you go on the course there and just check preview. You can check what’s all about, see if the style of learning fits your fits your needs. Um, and then if you can choose to decide to go through with it or not, no problem. I blog on have a and a free newsletter as well. If you enter in your email where I write content on a fairly regular basis about things you need to start thinking about the kind of psychology you want to have, the mindset and the market is the probably the most actionable thing I can I can provide you in and some words.
Andrew: 42:35 I think that’s awesome and again for people it’s cad and cad investing like the Canadian dollar and definitely a great place to go there. So Braden, this was excellent. We covered a ton of stuff. Anybody who is a Canadian investor, listened to this episode, they are locked and loaded, ready to go and a $50 trade credit. That’s really cool. I mean you’re basically almost getting the course for free and now you have money to already get started right away. So I liked that a lot. Thanks for coming on. Hopefully the background noise is kinda chaotic where I’m recording today. Hopefully the background noise wasn’t too distracting and I’m really appreciate the time that you spent with us.
Braden: 43:16 Yeah, no thanks for having me on and it’s been fun to kind of come on the show every once in awhile and almost track my own progress as well because you know, the worst thing you can do is try to stay, is staying stagnant when you’re learning anything and you want to just continue to get better and better and as soon as you think you know, everything that’s, that’s usually dangerous so you want to continue to learn. Um, and maybe next time when I come on the show we’ll see where I’m at there, but a happy, happy to help where I am now and uh, and continue to learn and to continue to grow and help as many people as I can along the way. So thanks for having me on the show.
Andrew: 43:54 Yeah, well we’ll check in. Remind me to ask you about any stocks that you sold in the upper evaluation multiple.
Braden: 44:03 So was there a number? No, I’ll be like, yep, 52 point four, two were both engineers. So that’s why I think we both have similar philosophy and how we look at stocks and look at finance in general.
Andrew: 44:24 DefiniTely, well, always fun to talk to you than a on mike or air, so take care. We’ll talk to you next time.
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