Transcript QAV U.S. 4

Cameron: [00:00:00] Welcome back to QAV America, Tony Kynaston. I think this is episode four. We’re recording this on the 6th of May. Australian time just did an Australian show, uh, where we were covering some news around value investing and the big news and value investing this week. Of course, Tony the announcement of the retirement of your personal savior, uh, Warren Buffett. Which

TK: Is, it’s not often yet, to be honest. It’s not often that I’ve had anybody in life, uh, anyone to look, look up to as. Far as Warren in life, they don’t come along very often, I don’t think who’ve made such a big change on my life. So yes, I’m happy to call him my personal savior. Charlie,

Cameron: is your personal saver? In Charlie, you mean? Charlie’s also your personal saver? Charlie Munger. Yeah.

TK: I, I neither [00:01:00] someone to look up to for grammar, but um, yes, Charlie and Warren are my personal saviors.

Cameron: Well, we just talked about Berkshire Hathaway and Warren for about, uh, 20 minutes, so I’m gonna cut to that and we’ll be back to talk about an American company in a minute. I’m gonna cut to that.

Warren Buffet

TK: Yes. Big news.

Cameron: Berkshire the 60th. Annual meeting of Berkshire Hathaway. He announced that he is retiring this year. Um, his 60th and final performance, and to be honest, I mean I watched most of his bit

TK: Oh,

Cameron: Charlie. It’s not the Yeah, yeah. It’s

TK: Okay.

Cameron: Charlie. Right. It’s just, uh, you know, I keep waiting for Warren to do his bit and they go, what do you think Charlie and Charlie having some Bon Mo at the end of it.

Some punchline.

TK: Yeah. Greg Abels. No. Charlie, [00:02:00] no.

Cameron: No. Is this the second year without Charlie or the first, I think it’s the second right.

TK: It’s,

Cameron: annual

TK: second. Yeah, second.

Cameron: Yeah.

TK: he wasn’t there during Covid ’cause he had, he had to lock down.

Cameron: That’s right.

TK: Yeah.

Cameron: Uh, so well look, it’s um, and Warren’s sounding his age too at 94.

TK: yeah.

Cameron: pretty croaky.

He’s walking with a cane, but I watched, I dunno, maybe two hours of his thing. Like, still incredibly entertaining, articulate, just terrific telling stories about how a Berkshire Hathaway lab invented the rear vision mirror for a racing car. Uh, they used to have a, they used to have two guys in a racing car, one to look behind them, and their guy was sick and couldn’t make it, so they invented the rear vision mirrors.

It is like, so if you’re wondering what Berkshire Hathaway companies are doing, just inventing things like rear vision mirrors for cars and stuff like that. There’s some subsidiary [00:03:00] of a subsidiary of a subsidiary that was involved in it. But yeah.

TK: My favorite anecdote, I, I haven’t, I’ve only listened for the first half of it, and it’s available on both podcast and YouTube if anyone wants to do yourself a favor and, and sit down to four and a half hours of it. But, um, my favorite anecdote was, uh, when they were talking about the cash pile that Warren had built up and someone asked him from the audience, um, whether there weren’t enough, uh, fat pitches to swing at. And, uh, he said, well, yeah, it’s a bit like life. Um, uh, a a 10 year old’s gonna have a lower chance of dying tomorrow than a 94-year-old. so you don’t always get the same odds every time, the market, wherever you are on the market cycle. and, and then he said, as to longevity, it’s, I also point out that, that fe females live longer than males. I tried to convince Charlie to have a sex change.

Cameron: It is a great line. It was a great line. Yeah.

TK: Uh.

Cameron: [00:04:00] kid got up and asked him, said that he’d always advocated, um, moving slowly and were there times when moving quickly had benefited them? Have you heard that one?

TK: Yeah, but go ahead. Tell her. It’s great.

Cameron: Well, no. He just says, you know, there are, there have been times when they moved quickly about one guy, I think it was the same guy that sold in the company. They ended up building the rear vision mirror. But, he found a guy that his business partner had died and this guy didn’t want to do business with the guy’s widow.

So ended up calling Warren and saying, Hey, you wanna buy my company? And they moved quickly and did a deal, like in, you know, 10 minutes with a handshake. he said, you know, ba basically they, they moved slowly. To build up the cash. So when they need to move quickly, they can. That’s basically, it’s not like you always move slowly, move slowly until you see the reason to move quickly and then you move quickly.

But, [00:05:00] uh, it was a good, was like a 20 minute answer to the question, but it was, it was long meandering, anecdote filled answer. But it was great and I’m gonna

TK: Oh yeah.

Cameron: the end of an era for many reasons. But one of them is just that country bumpkin down home soft, you know, just gentle, nice man of integrity, old school who does business with his head held high.

And, know, treats people with respect, uh, expects to be treated with respect. He said something about. You have to be willing to hang up within 10 seconds, but also like close a deal within 10 seconds as well. He was talking about how Mo most of the people he just says no to very quickly.

TK: Yeah. Yeah, that, that, um, 30 minute

Cameron: quickly.

TK: he’s spoken about before where he had, says, I asked five questions, and if they can [00:06:00] answer those, it’s a deal. So, no one’s, no, he’s never, he won’t divulge what the five questions are. People have tried to work them out, uh, he has five, five questions and, uh, which is amazing.

And he acted very quickly during the GFC to, bail out some of the American banks and to be the lender of last resort and to do two very favorable deals, deals for Berkshire Hathaway to recapitalize some of the banks at, at tremendous interest rates back to Berkshire and convertible note deals. So, yep.

He’s, he’s

Cameron: I. And Greg had a good follow up to that too, where he said, you don’t underestimate the amount of work that’s happening behind the scenes when we’re moving slowly can move quickly when the right deal comes. They said there’s like, I can’t remember the number, but there’s like a handful of businesses that they understand really well, and they’re ready to move on

TK: Yeah.

Cameron: the right price, right opportunity comes across their table.

So their due diligence.[00:07:00]

TK: yeah. Sounds like a buy list, doesn’t it?

Cameron: Yeah, they have a buy list. Yeah, exactly. They’re just waiting for the price to get be ready and for times to be tough enough that people come to. But as always, people asked him about, um, well they asked about ai, uh, I think it was Aji. They asked about ai. Warren said he would take one ADT over a hundred ais something like

TK: For the next 10

Cameron: also said AI’s gonna have a huge impact on the Geico business, the insurance business. But they also talked about the u the prospects of the us A lot of doom and gloom, obviously about the US markets and the future of the us. And Warren, as always was very of, um. about the future of the us but then also

TK: Yep.

Cameron: that they’ve, they’ve bought a lot of foreign currencies, so I don’t think he’s as optimistic about the [00:08:00] future of the US dollar, but, uh, yeah.

TK: Well, he, um, made a couple of comments and he, he, um, tries not to be too political, but you know, he, he, he said it doesn’t, it doesn’t, it doesn’t end well if one country beats their chest and says, Hey, hey, look at us. We’re really good. And, uh, the rest of you can, go away. said that, you know, world Trade helps all countries, which I think is a, you know, is true. Uh. Someone in writing about, I think it was, it was Warren. Um, but, uh, he, he does like to say never bet against the us and he pointed out at some stage that the, um, market in the US had risen from $66 to 11,497. This is a few years ago, I guess, despite two world wars of depression and a dozen recessions or shocks and flu epidemics.

So, know, he’s, always [00:09:00] pointed out the long-term game of, of backing the US and the fact that it’s gonna, yeah, probably still gonna be around for a while. I thought

Cameron: Yeah,

TK: though he is investing heavily in Japan and overseas, for

Cameron: Hmm. It’s cherry picking the era though. I mean, he’s talking about the success of the US during the century when the US was basically the power of the world. I mean, there was no other. Um, competing forces in that 100 year period from World War I mostly. After World War ii, the US didn’t have any competition economically or militarily, really.

It just, it had, uh, a, a very empty runway. And it’s not that ca it’s not the case anymore. It’s not gonna be the case for the rest of this century.

TK: We’ll see, it’s, um, they’ve certainly done well so far, the first 25 years of this century, stock market’s up dramatically and they’re facing competition. But yeah. Um, maybe it’ll be tougher. I mean, I think they [00:10:00] did face competition in the first bit of the US in the 20th century, the end of the British Empire. Um, and, uh, some parts of Europe anyway, so yeah, was, they had a lot of tailwinds for sure. All, all I’m doing is commenting on what Buffet’s saying. They may, they may have difficulty going forward. Um, they may have had headwinds last century. They still have headwinds. I think they’ll do. Okay.

Cameron: Well, we’ll see. Uh, let me move on and do you Moore? Do you have more

TK: I do, I’ve got some, I’ve got some quotes. Um, yeah, so, uh, let me just go, yeah, so just got, just on that, one of his quotes from the, the annual meeting was that, uh, he accepts that the American process has not always been pretty and is invested with scandals and promoters. Um, so I think that’s to your, you know, comments as well about us exceptionalism. but despite all that, he still says, don’t bet against America. Uh, [00:11:00] there’s the, there was a, um, a talk about the investment with Apple and Bank of America. So, The, the quote is, um, Berkshire has been selling down its enormous stake in Apple and Bank of America as the proceeds have accumulated into an enormous pile of cash, 536 billion Australian dollars. The initial investment was one of the gravest trades of all time. As the firm, which has Berkshire Hathaway accumulated 900 million shares in the iPhone maker and Buffet equipped that Apple Chief executive Tim Cook, made more money for Berkshire Hathaway than he ever did. investment grew from about 35 billion to 173 billion US in about six years. However, uh, last year, Berkshire began selling and reduced its apple stake by two thirds. There was some speculation at the time that the sales were part of a succession plan. Given that buffet’s 94 years old, buffet did con indeed confirm that he was stepping down, but he said he had no intention of making [00:12:00] able, who apparently didn’t know about the succession plan, prior to the announcement in advance looked good by handing him a wa of cash, the big liquidation of Apple stock proved justified as trade wars and supply chain concerns have since sent the stock down as much as 20%. So I think he said something like, when someone asked him about the pile of cash, was it set up to make Greg look good? He said, no, I wanna look good. Um, article today quoting some of the, um, Australian fund managers on, on, I. Buffett and I should say, uh, in a, you know, in addition to the comments I’m about to read out, if you are listening to this and you haven’t read the collective Sharehold letters, uh, of Berkshire Hathaway and you haven’t read the Making of an American capitalist or the Snowball, just drop what you’re doing and go and buy both of those and read them because they are the best course you’ll do in investing. [00:13:00] Full stop.

Cameron: Yeah.

TK: Uh, so John Abernethy, which is, um, he’s the chairman of Climate Investment Management. and I’ll declare, I’m a director of CIW now, um, and have been a, uh, a long time fan of John. Uh, but he said Warren Buffett has an overwhelming supply of common sense that gives him the capacity to invest both logically and method and methodol Of course, common sense does not mean that he always gets, uh, things right, but it does allow him to make consistently good decisions and to quickly identify and rectify wrong ones. Both of these attributes make him a great investor, and importantly from a human perspective, a great mentor to the investment world through his published thoughts and letters. Um, Andrew Mitchell from Management said one of my favorite war aphorisms is I don’t look to jump over seven foot bars. I look around for one foot bars that I can step over. Whenever a [00:14:00] day like Liberation Date tariffs come along, I remind myself of Buffet’s never wavering view of America and capitalism, and the positive sum game that investing is. That was a quote about, uh, the Dow going from 66 to 11,000. Uh, Chris Proti of QVG capital says I was 17 when I bought the Warren Buffet way at Demmick and t on Canberra. I read it immediately and thought, this is what I want to do. That was my first real introduction to the world of stock picking. What I’ve learned from him the most is rationality and discipline, even when questioning, even when answering financial questions. He’s deeply analytical, always going back to the numbers. It is incredibly difficult to maintain outsized returns when manage managing vast sums of money. Yet no one handles more that more than Warren Buffet in terms of money, and still he’s continued to generate credible, sustainable returns. That combination of scale and success is almost unmatched. Finally, his willingness to teach and [00:15:00] share what he’s learned is another remarkable quality. He’s been generous with his insights, helping others understand the principles behind his success. And lastly, Jeff Wilson from Wilson Asset Management. He says, uh, Charlie and Warren’s influence wasn’t just about stock picking, it was about instilling common sense and sound principles for both investing and life in general. and Munger made complex financial concepts accessible and practical teaching not only about investing, but also about the skills and mindsets needed for success. shared life lessons and transcended the world of finance. Their ability to communicate the benefits of long-term investing, discipline, patience, and rational decision making has left an indelible mark for decades.

They showed us what it takes to succeed in investing, how to think independently, and how to make decisions based on thoughtful analysis rather than emotion. So I echo all of those sentiments and if I ran the school system [00:16:00] in Australia, I’d make, I. For and times of Warren and Charlie, of the curriculum for all people going through grade 12, before they enter the the workforce.

Cameron: Roger Lowenstein, who wrote Buffet the Making of an American capitalist, uh, had wrote an article in the New York Times Today, the likes of Warren Buffett, we will never see again. And I just wanted to read a couple of paragraphs from that. He says, Berkshire’s stock on that day in May that Warren took over, the company CLO 1963, closed at $18 a share.

When he delivered the news of his retirement, it was above $809,000, almost 45,000 times as high over the same span. The Dow Jones Industrial average is up just under 45 times. How much did you sell your Berkshire shares for

TK: No, don’t keep reminding me. That’s [00:17:00] a lot less than what they are now. it was, I, I, going from memory, it was in the three hundreds from memory thousands.

Cameron: ah, ago. So that’s

TK: It was,

Cameron: Yeah,

TK: I did it because I actually was concerned what happens to Berkshire Hathaway when Warren and Charlie go, and it’ll be interesting

Cameron: price is down.

TK: Is it okay? I haven’t

Cameron: Yeah. Yeah. I heard it was down like 6% or something after he delivered the news. Lowenstein goes on. Mr. Buffet has long stood out on Wall Street because he its frequent chicanery self-dealing and greed, and the double talk that went with it. He revered the institutions of capitalism.

Most especially, he treated the executive’s duty to shareholders as a sacred trust, lest he be accused of violating that trust. He kept his annual salary at $100,000. He never took a stock option. The unholy tool by which chief executives expropriate a piece of the business from the [00:18:00] shareholders for whom they are fiduciaries in corporate America.

That made him all but unique.

TK: Correct. A hundred percent. And, um, largely didn’t sell shares along the way. He’s been giving him the charity as part of the, um, the wealth pack, the giving backpack, yeah.

Cameron: Yeah. And lived relatively simply,

TK: Mm-hmm.

Cameron: same car, more or less. Uh, you know, he said he had a few divorces along the way and

TK: We had

Cameron: but

TK: Yeah.

Cameron: Right.

TK: Um, and he, you know, I, he lived simply, I think, I think that may have changed over the years. I think he, I think he was a good marketer when it came to that story. Um,

Cameron: right.

TK: I’ve certainly, I’ve been to his house in Omaha. It’s certainly, you know, a classic middle class suburban house in America. but I think he probably has lived out of hotels for a long time. Um, and at at one stage he, you know, there was a corporate aircraft for Berkshire Hathaway execs to fly around. And so yeah, [00:19:00] he’s, he’s done Okay. On the lifestyle front. I’m not gonna, but I’m not gonna begrudge him that.

Cameron: but, he didn’t live some sort of

TK: No.

Cameron: Gordy sort of lifestyle. Like he kept it relatively simple.

TK: Correct. And you know, I turned on the TV again this morning and there was some clip for some dude from the us. You know, sitting in a Maserati or driving a Ferrari, singing any song and on a yacht and, you know, drinking champagne. And I’m just thinking that’s, yeah, that’s, that’s not a good image in my opinion. Warren’s image is much better. I

Cameron: All right. Anything more you wanna say about Warren before we move

TK: no, just, and we’re kind of sounding like he’s passed on. He hasn’t, it’ll, he’s, he’s probably still gonna exert an influence on Berkshire Hathaway. But yeah, next year, next year’s a GM will be interesting. Um, Warren leaves, I think in December, uh, so it’ll be six months under Greg and Aji and, and Todd and Ted and everybody else. I suspect, [00:20:00] you know, Warren’s thought long and hard about succession and how to structure Berkshire, so it’s hard to take over and break up and, and to give, um, Greg the right kind of, uh, training to trust agent and to trust the invest investment team, et cetera. So, um, yeah, it’ll be interesting to see what happens.

Cameron: Do you think 30,000 people will turn up to the annual meeting once Warren’s not there?

TK: I have thought about this. It’s more than 30. The, the, when I was there, it’s like there’s a big, used one of the arenas which holds 40, I think 40,000 people. But if you don’t camp, how at, at, you know, early in the early hours of the morning, I think I got there about 4:00 AM You don’t get a seat, you’re forced across the road into one of the hotel ballrooms to see it live on tv. So it’s more like probably double that turn up to Omaha to, um, to go to the A GM. uh, I think if Warren turns up as a shareholder, I think yes, I’d be surprised if I was Greg Abel, I’d be inviting him up on stage to take some questions. [00:21:00] I dunno if Warren will do that, but, um, if, if he, if the sort of people think he will, they’ll turn up. Um. I think, uh, some people will turn up just to see what, uh, how Greg performs and what’s happened with, um, Berkshire Hathaway to get some kind of comfort that there’s essentially no change in the strategy. But you know, it’ll be interesting to see.

Cameron: All right, let’s move on.

Before we get into your. dive for the week. Tony, I just wanna touch on the performance of our US dummy portfolio. I mentioned last week, I started this in September, 2023, so it’s been going for 18 months. Now current performance over that time is 56.51%. That’s the return on it in that 18 month period versus the s and p 500, which is up about 27% over the same timeframe. So if I look at [00:22:00] the last year. We’re up about 38% over the last 12 months versus the s and p up about 10%. And if I look at year to date, it has not been as glamorous. We’re down 16 point a 5% year to date versus the s and p down 4%, and I’m sitting on about $4,000. Cash in the portfolio that I haven’t been able to invest yet. I did a buy list last week when I went to, uh, buy stuff. Everything was having a down day. I couldn’t find much. I think I found one thing we talked about last week. I did another buy list on the weekend, uh, with the intention of trying to. Find time to spend that money. Yesterday had a whole bunch of things blow up in my face yesterday, so I didn’t get to do it, but I’m gonna try and, which is about like, it’s about, I dunno, 25% of our portfolio that that’s sitting in cash, which is an ideal.

So I’m trying to get rid of that as [00:23:00] soon as possible this week. Alright. But it’s doing well. I mean, basically we said, I think last time when we. I started thinking about how we applied your framework to the US market. We weren’t really sure how it would go. We have a different data provider over there, stock edia than we were using here, which didn’t have all of the data that we normally use.

And some of it was a little bit different and I had to modify the checklist process. But, uh, you know, up 58% in that 18 month period is good. So it’s working well.

TK: It is and no mag seven stocks to be seen in the portfolio.

Cameron: No, they’re all boring ass shipping and local financial services companies, uh, you know,

TK: thanks.

Cameron: uh, yeah, boring, boring companies that are just generating a lot of cash

TK: Hmm.

Cameron: that we can buy cheaply

TK: Yes, [00:24:00] exactly.

Cameron: are a great company at fair value.

TK: Well, yeah, I think the values are even fair. Better than fair. uh, you know, buying a bank at three times cash flow is pretty Good price.

Cameron: than fair. Hmm.

TK: fair. Yep.

Do you

Cameron: that.

TK: stock stocks for beginners? So.

Cameron: yes,

TK: let our listeners know uh, Phil Musk, Carello friend of our, our show is, um, interviewed me last week and will put out a, US Stocks for Beginners Show where he, we talk about my background and how QAV works. So anyone who’s interested in knowing more about QAV, look out for stocks for beginners in your podcast feeds.

Cameron: And thank you, Phil, for having Tony on yet again.

TK: Yeah. Thanks Phil. Good to see Phil. I haven’t seen him for a while. He was, um, he’s living up in the North coast now, telling me about looking over the river. Sounds wonderful.

Cameron: I keep telling him we’ve gotta catch up for [00:25:00] lunch, but

TK: Hmm.

Cameron: blowing me off. I’m starting to take it personally.

 now I, I didn’t have time to do a prep for a deep dive on an American company today, Tony, but you took that for me, which I appreciate.

\ So just to explain to people before you get into doing your deep dive or your pulled pork as we call it. The reason we do these is for people that are new to QAV, just to explain in a little bit detail in each episode by taking a case example, one company that we can, uh, look at in a little bit more detail. How we, uh, value the different fundamental metrics and why we value them. So don’t often when we’re, when we’re doing our analysis, get too deep into the story of any business or the history. We tend to just look at the numbers. But we find it is helpful if you take one particular example and you, uh, break it apart and. interesting for me anyway, to learn a little bit more about some of the businesses that are on our buy list [00:26:00] each week, but also gives Tony an opportunity to talk about the numbers and how we scored it and why it’s on the buy list. I guess

TK: No, I agree. I always nice to know a bit about what we’re buying, but we are focusing on the numbers and then a bit of the picture about the company, um, behind it. it’s uh, it’s probably more relevant to my Australian investing experience, but do sort of learn, I. things along the way too.

And, um, that can come up during a pulled pork. one of the stages before I buy something is to do a quick, um, market scan of any news. You know, something you have to take into account and your, um, decision to buy this stock versus something else on the buy list, not just the score.

so yeah, I think it’s, I think it’s worthwhile doing a pulled pork, but it also does show, um. How you can have something going on in the market, like how is the tariffs going to affect the Canadian economy, which is pretty uncertain. [00:27:00] Um, and the business operating in that market, but still scoring well on the numbers, um, which gives me some it.

Cameron: All right, let’s get into it.

TK: I am gonna do a deep dive on a Canadian company, cam, uh,

Cameron: Oh, okay.

TK: Bank of Commerce, the IBC as it’s known, uh, and the code is cm. And of the reasons why I picked this is because my wife used to work for CIBC when we lived in Toronto up until six odd years ago. my experience is a little bit out of date.

Um, but it was, um, it was nice to see a company I knew firsthand on the. On the buy list, even though we don’t live in America. Um, and, uh, we don’t have any shares in CIBC anymore. Jenny had some she was working there, but, um, they’ve been sold over the years. Uh.

Cameron: Mm-hmm.

TK: And the other point, I guess to use as a preface is that this is a dual listed company.

So it’s, it is [00:28:00] listed on the New York Stock Exchange. Um, cm, as I said, is the code, but it’s also dual listed in the Toronto Stock Exchange as well. I’ll be US dollars in this analysis and the US listing as the basis for the commentary. So CIBC, Canadian Bank. What does it do? Well, it’s primarily a retail bank, is probably the first thing to say.

have expanded a lot outside of just, um, providing mortgages to people, to customers. They also, and credit cards, and I. Loans for, uh, to buy cars and other personal needs. Um, and like all the Canadian banks now, they have gotten into wealth management in a big way. Um, and, uh, facilitate share trading and things like that.

But they’re basically a retail bank, so they’re not like your Goldman Sachs or your Deutsche Bank out there doing big mergers and acquisitions deals. They do a bit of that, but, but primarily they’re a retail bank. Why is that important, cam? Because during the GFC, [00:29:00] the four. Big banks in Australia and the five big banks in Canada through, um, intact and largely unscathed, which was more than almost any other bank in the world.

And you, you can remember the, the, the crisis that the GFC that kind of kicked off the GFC was a lot of, uh, problems with a couple of banks in the UK and with, um, the banks in, uh, on Wall Street. So, um. Retail banking, even though it was seen as a fairly stodgy business sector, um, sailed through, uh, the GFC from a risk point of view.

And Canada and Australia were the only two sectors that did that. Uh, CIBC is headquartered in Bay Street, Toronto, which is the Wall Street of Canada. as an aside, bay Street used was often shut down as I was going to pick Jenny up after work. and it was full of. Film trucks setting up to use, uh, the Canadian, financial [00:30:00] district as a backdrop for series like suits and movies.

Um, suicide Squad was filmed up there. Um, and as of today, there may be a hundred percent tariff on overseas produced movies and TVs. So we’re all, um, waiting to see what happens with that announcement. Um, what else can I say about CIBC? From my own personal experience, I always found their branches in Toronto comforting.

They were large and spacious and had chairs for people to sit in and bowls full of lollies to munch on, and I always thought that was an interesting strategy, being a, an old retailer myself. Um, then I found out it was driven by the desire to protect old people during the Canadian winter. So CIBC was trying to position their.

Their branches is a bit of a haven in the snowstorm, literally. Um, and, uh, look after its customers when the weather wasn’t great. Um, differences? Um, the Canadian banking system were a big user of checks to pay for things. Um, they didn’t [00:31:00] have, like we have in Australia, a pay, pay from account to account between the banking, I.

Uh, the banks in Canada. So, know, um, if you had to pay a bill, you wrote a check and put it in an envelope, send it off to the gas company, and you didn’t, um, online and do a, you know, pay anyone transfer like we have in Australia. Now, that may have changed since, um, I’ve left Canada, but it was certainly a, um, an idiosyncratic part about the Canadian banking system.

Um, the other, I guess, uh, thing to highlight was. The Canadian pension system is a bit different to Australia and to the us in that, um, I think last count was about 40% Canadian pension funds are still what’s called defined, defined benefit plans. Um, we have almost none of those left in Australia.

We have defined contribution. Plan. So a defined benefit plan gives a retiree a certain multiple of their last salary or of their last three years, um, as a, as [00:32:00] an ongoing payment, almost like a, like a pension payment. And, um, the pension plan bears the risk on being able to do that as opposed to defined contribution plans, which say we all pay in a certain amount and then the end user faces the, um, the risk if the share market goes down or if.

The world goes into recession. Um, different ways of managing it. But I, I guess if you’re an actuary, head over to Canada. ’cause that’s, um, that’s where the action is if you’re an actuary. Not the, not that they see themselves as being action oriented, but that’s where they should head to. Um, but it has meant that in Canada there are some large companies which have benefited from that environment.

investors, uh, around the world may have heard of things like the Ontario Teachers Pension Um. Omers, the Municipal Employees Retirement System of Ontario. Um, and also big companies like Brookfield Asset Management, um, which are companies, um, operating these, these kinds of, uh, [00:33:00] pension plans.

And they, they’ve pooled the assets and are now investing in a lot of commercial property around the world. All of unlisted assets, infrastructure, for example, but also in large companies. So that’s something which, which, um, has sprung up from Canada that people may have experienced. Uh, what can I say?

What does Canadian Imperial Bank of Commerce say about themselves? They have over 14 million personal banking, business, public sector, and institutional clients in North America and around the world. company has four strategic business units, Canadian personal and business banking, Canadian commercial banking and wealth management, US commercial banking and wealth management.

Capital markets and direct financial services. DIBC is part of the Big five in Canada, um, like the Big four in Australia. C like C, B-A-A-N-Z, Westpac and National Australia Bank. There are five companies. Like that in Canada together, they Mabb, they make up for, uh, they make up [00:34:00] 84% of the market share in Canada for banking.

Um, however, CIBC is at the smaller end of the big five, um, depending on how you measure market share by revenue or by, other ways. See the four or five, um, in, in terms of its market cap size, it’s about the same size as a NZ in Australia, which only something to, um, Australian listeners. Uh, RBC is the Royal Bank of Canada is the largest bank.

and, uh. Interestingly enough, uh, RBC has 26% of its revenue coming outta the US now. So in the last sort of 10 to 15 years, the Canadian banks have diversified into the us. RBC lived the charge. So the tariff, um, and uh, tariff risks are, uh, a hot one for a bank like RBC and also for CIBC. But, um, it’s a smaller issue for them given that they’re a smaller.

Uh, bank and, [00:35:00] haven’t been as successful at getting into the US as, um, RBC, but I’ve got a couple of quotes here about the issue. this one. Um, actually from an RBC capital markets analyst who says, Canadian bank stocks could see another nine to 16% downside if President Trump’s tariff threats materialize and can Canada’s economy weakens?

Our observations indicate that banks with the largest market exposures to economic uncertainties tend to be penalized by the market. Uh, median prices of large Canadian bank stocks have declined approximately 7% since Trump’s February one tariff order on imports from Canada, but says valuations do not reflect the worst case scenario.

Uh, brokerage says that, uh, CM and BNS two banks with highline exposure to Ontario and Mexico have been hit the harvest while b and o and NA, with lower risk. Premiums have held up better. So again, their, [00:36:00] um, other banks in Canada, LA last month, top Canadian banks said they would wait for clarity on US government tariffs before increasing, um, rainy day reserves and taking a cautious stance as trade risk cloud, the economic outlook.

So that’s, um, on the fact that the trade. Uh, issues and tariff, tariffs on Canada and Mexico will affect these banks. However, if you look at the sentiment chart that we have for cn, um, it’s actually been reasonably bullish. Um, I’ll just call it up. If I look at, uh, CN in, uh, the New York Stock Exchange.

Just bear with me while the court went up. The graph says that, um, it’s loading. Here we go. Still [00:37:00] loading.

Uh, look like it’s having problems loading at the moment, but, but, um, from looking at it before, it’s, um, the trend is upwards in the, in the fair price for, for, um, the IBC and it’s above its spy line, um, and, and above its cell line. So it’s, um, certainly getting strong sentiment even though there’s a lot going on, um, in the us uh, us.

Um. Or in this market, in banking market in Toronto. Um, the other thing which

Cameron: open in front of me, Tony. It’s, it’s like it’s trading at nearly an all time high, is interesting. I look at it, looking at it’s 10 year charts, currently trading at about $63 78 all time higher. Was only, um, like late last year and it was slightly north of that. Maybe 64, 60 $5. But, uh, it’s, uh, looking very, very strong.

TK: Yeah, which is surprising everything that’s [00:38:00] going on, uh, with, with tariffs and how it would affect the Canadian economy and, operating in the US as well. I. The other, um, the other interesting thing is, uh, that they’re an, they’ve announced that their, uh, CEO’s going to transition, um, to retire to retirement in October, uh, and be replaced by a chap called Harry Cohan, um, that currently the head of the Canadian Banks Capital Markets Division.

So he will serve as c uh, chief Operating Officer as of April one this year, and take over as CEO in November one. Uh, interesting thing about him is that he started off in, um, he’s come up through the ranks in CIBC, so think it’s always good to see succession from within. Um, you’ve certainly got someone who understands the business inside and out.

he says, I understand the risk quite well. This is about the trade, the trade, uh, issues between the [00:39:00] US and Canada. I understand risk quite well. It’s one of my strengths. We’re not worried column said in an interview with Reuters, which I think is a bit of hubris really, but to say you’re not worried.

But, um, anyway, hopefully he’s a bit, uh, a bit more, um, sanguine when he, when he, uh, the business. And takes over the business. He says, we can control the controls and we think we’re good at that. We went through Covid, we’ve been through other ups and downs. Reuters reports that Colum joined CIBC in Vancouver as an intern in its graduate.

Uh. Programs. He held senior banking roles in Europe and Asia before rejoining CIBC in 2008. So at the end of the GFC, became the head of the Capital Markets unit in 2015. Um, what else can I say? Uh, an RBC Capital Markets analyst said that Colum brings solid experience in capital markets that will be be beneficial to the bank, even though his personal and commercial banking experience is [00:40:00] relatively limited.

Um. Yeah, so I can go on, but we’ve covered most of the issues that they talk about there. Uh, so. Let me, let me talk about their results. And this is, I think, what was driving the share price recently. And I wanna also highlight that, uh, we use the Q1 results delivered on February 27, for our QAV analysis, which I’ll go through in a minute.

but the next results are going to be announced on May 29. And given all that’s happening, all we’ve just spoke about with the, um, tariffs that have been imposed on Canada or Mexico, the results may change and guidance may change. So we may not see a huge change in numbers in the three months, um, the tariffs were announced, but certainly guidance may change.

But the last, uh, set of results were very good. Revenue was up year on year, 17%. Earnings per share was up 22%. Um, both solid, uh, results. Uh. NIM. So net [00:41:00] interest margin is something analysts will focus on was 1.5%, and that’s broadly in line with what we see with Australian banks. on equity was 13.3%.

Again, we don’t focus on return on equity our calculation, but that’s a good number for a bank. common equity tier one ratio was 13.3%, so we. We’ve spoken about the, the tier one ratio when we’ve done pulled porks on Australian banks before, but basically it’s the amount of capital, um, which doesn’t have to be cash, but it can be, um, things that they can liquidate in the short term, which is a buffer for any sort of run on a bag if there’s a, a downturn in the economy.

And regulators will set, um, a tier one capital ratio and tier two and tier three. Um, um. Scaled to be, uh, how quick you can liquidate the, the assets which are available to payout customers who want to redeem their savings from the, from the bank. And the higher that number generally [00:42:00] seen as being the, the stronger the bank.

And 13.3 is, is a pretty strong number for, tier one ratio. So not only is the bank doing well year on year, but it’s also pretty robust as from a regulatory point of view. So that’s good. As I said, these results occurred prior to liberation days, and so the next results, results will be an important update.

Um, but, you know, um, to use a, to, to borrow a warrant, a aphorism, we’re buying straw hats in winter with this bank. It’s, it’s, um, cheap based on its current metrics, and the sentiment’s still strong, so it hasn’t been sold off because of Liberation Day. So, um. We’ll see what, what happens in the future.

But at the moment, it’s worth looking at QAV numbers. Um. To analyze the stocks, the stock price I used was $63 72. That’s less than our intrinsic value number one calculation of 77 point 39, but above our intrinsic value number two calculation of [00:43:00] $37. And people can go to the website and have a look at what, um, those calculations are.

But basically it’s a, a deep value intrinsic value calculation and one which is more in line with how analysts will, um, put a price on this company. Uh, as I said, sentiment is an uptrend. Oh, here we go. I’ve got my notes here. The buy price is currently $55, um, 23, and the stock price is $63 72, so it’s above the buy price.

DT average daily trade for this company is $70 million, so it’s, it’s very liquid and would suit most, uh, personal investors. I think probably all personal investors price to operate in cash flow is just above three times, so it’s a very cheap, um. Payback. If you invest in this company based on the operating cash, it’s throwing off, Wikipedia ranked this company as 69 out of, um, a hundred, which is a bit on the low side.

We, we, uh, give it a score on our checklist if the quality is above 60, a ranking of 60 in Wikipedia. [00:44:00] I think the reason for it is, um, even though, CIBC gets an F score of six out of nine, which is really good. And an F score is a way of valuing the quality of the financials of companies. There’s no ZED score, which is another way of, um, looking at the bankruptcy risk for companies.

And so we can’t score it for that. And I think we, well, I’ve seen this before, um, that the quality ranking, uh, styles or systems. Like in the Stock Doctor in Australia often have problems adapting themselves for banking companies and financial services companies. ’cause they basically come out of scoring industrial companies.

Um, and banks have a different kind of, um. play of the metrics than, um, than industrial companies. So I think that’s why the, quality rankings a bit lower in stock. Edia, there’s no DZ score, but overall stock edia rank, uh, CIBC is 96 out of a hundred, which is quite high. So, um, that’s good. We score it for that.

Um, PE [00:45:00] ratio is just over 10 times and it’s in the range for the last three years, so we don’t score it for being, um, above or below that range. Um. Can’t score it on pe. Earnings per share growth is forecast at 11%. But if I put 11% over the, uh, PE score, getting a, a. Price to, uh, earnings growth of 1.06 and we look for a threshold of 1.5 before we give it a score in QAV.

So no score for that. Uh, yield is high, but not, um, higher than the average mortgage rate. So yield is 4.17%, so we don’t score it for that. per share is $59, so I can’t score it for book value, so we can’t buy it for less than book, but we can buy it for less than book plus 30, which is 77 point 48.

So that’s, um. That’s good that we can buy it for just above its assets. Uh, this company’s been around for a long time and it’s a large bank, so don’t have an owner founder, so I can’t score it for that. book value is increasing, so we like to see [00:46:00] consistently increasing equity over the last three years, so we score it for that.

So over overall, the quality score is 64% and when we plugged it into the checklist, we get a QAV score of 0.21, which is quite good a, for a bank. So it’s good. Um. I think I’ve outlined the risks as we’ve gone through the analysis, but just to say again, to highlight the next earnings call will be an interesting one, which comes up in a week or so.

Um, and so I highlight this as something to put on the buy list for customers in the US for, for listeners in the us. Um, they might wanna wait until the, the only call comes out to see how, um, the numbers pan out after that, to watch.

Cameron: Thank you Tony.

Have a great week. We’ll be back next time. If anyone has any questions, don’t forget to go to QAV america.com and uh, find my email address on there.

Shoot me an email if you’ve got questions for the show for next week.

TK: Yeah, please. We need a, we need a US Trent [00:47:00] to ask us lots of questions. One of our listeners in Australia,

Cameron: Glad you explained that.

TK: good.

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