Deep Dive
Shownotes Transcript
Hello and welcome to the TL;DR podcast. A show about the culture, gossip, and business of money. And this week, sorry they closed Canada, come back later.
My name is Devin Friedman. I am here with my co-host, Matt Keres, as the director of product for WellSimple, our sponsor. Matthew, how are you? I can look and see you. We're in the same room today. Yeah, it's making my day. Honestly, my heart's been fluttering ever since I got here. I know. I think there's chemistry between us. What can I say? It's great.
Sarah Rieger is the business and markets correspondent for the TLDR newsletter. Sarah, tell us what happened this week. I've been ignoring all the news this week and just getting mad at the Oscar nominations. Okay, one movie that got nominations that didn't deserve it. I don't know about that got them and didn't deserve it. Come on, let's feel the hate here. Okay, I didn't like the Bob Dylan movie, The Complete Unknown. Oh, shit.
I think it might be a me problem, though. I hate biopics. I find them, like, really cheesy. And this week, we have a special guest, someone we have been wanting to have on the show for, what, months now? Anis Haidari is a senior reporter for CBC News on the business team. Anis, thank you for finally making it onto the show. I'm really glad I get to join you guys. I've been listening since you guys started. Long-time listener, first-time caller. Tell us what the worst thing is about our show.
- Oh, you know, I actually can't do that. - Yeah, you can. - I guess I would say you haven't had me on early enough. - Ooh, well done, well played. - Yeah, the absence of a niece.
Okay, we have a very interesting show this week. We're going to talk about tariffs and what they're going to do to the Canadian auto industry. We're going to talk about immigration, probably the most hot button issue in North America this year. And we're going to talk about a Canadian company that is basically the top three performing stock in the world. And it's a company you may not have ever heard of. Matt Keres, you are up. Who is making or losing money that's interesting to you right now?
Constellation Software is, I think, the biggest, best-performing Canadian company that you've never heard of. It's generated more wealth for its shareholders than basically any other public company since 2010, third behind NVIDIA and Apple. And to give you a sense of scale, it's like...
One of the 10 most valuable companies in Canada has around $10 billion in annual sales. So, like, bigger than Shopify, Dollarama, Bombardier, Thomson Reuters, you know, most of the biggies. I love these stories about giant companies that you don't know about that, like, make a ton of money or people have made a ton of money investing in them. I want to know what they do. But first of all, like, why are we talking about this now in particular? Well, the honest answer is that, like, the newspapers have just been, like...
flooded with pictures of these like big US tech moguls all week. And I sort of got to thinking, who are the Canadian versions of those? And so there's obviously Toby, but everyone always talks about him. But I looked at the list. Toby who? Toby Luka? Shopify. Yeah. Shopify. But so I was like, wait, is he the only one actually? So I just looked down the list of the top most valuable companies in Canada and I saw Constellation Software. And I was like, wait,
There's another big software company in Canada besides Shopify and Wealthsimple. And, you know, the rest is history. I have to say that looking through your show notes, Constellation guy has a very interesting look. You know, he seems like he's ready for his moment. If nobody has ever seen this guy, I highly recommend the founder, CEO,
Is Mark Leonard. He's gotten like a cult-like following. But if you go online, there's actually not that much written about him, but you can find one or two pictures. And at least from these pictures, he looks like a Gandalf type figure. But bald, like Joe Rogan Gandalf. Yeah. Mark Leonard is also the name of the man who played Sarek in the original Star Trek. So... Important fact. Could it be the same person? I'm really into this company now. Okay. So Constellation is...
One of the top three performing stocks of what, the last 15 years, you said? It's top three wealth creating stock over the last three years. So what, like, has it made some like kind of technology that we all use all the time and just don't know it? What does it do? You wouldn't know any of the products they make. They don't, like they being like Mark Leonard and like the parent company don't make anything, basically. It's just...
a conglomerate. Think, you know, LVMH or Berkshire Hathaway, the famous Buffett conglomerate. It actually follows the same investment approach, you know, looking for high quality, durable businesses run by strong management teams and available at reasonable prices. What are the high quality, durable businesses? Yeah, so this is sort of where the peril of Berkshire sort of ends. Like Berkshire, you know, especially more recently, like was known for these very big acquisitions, like had a huge stake in Apple, Apple,
Coca-Cola.
Two of their most recent acquisitions were for companies called curbside management, basically the software for public parking facilities or public safety solutions, the software for red light cameras and automated enforcement, that kind of thing. So presumably they know good software when they see it. That's an expertise they have and they know what a good price for that software is.
It sounds to me like a venture capital fund, but one that uses, you know, stock sales to do as fundraising. So it's like a public venture capital fund. You're right that there's like some similarities to a venture fund. Like there's a software focus. It is buying companies. That's sort of where the...
similarities end. Actually, the founder and CEO, Mark Leonard, before he started Constellation, he actually worked in VC for about 10 years. And apparently he thought that this idea about investing in software was great, but didn't like the idea of trying to find high growth companies at higher prices. And it didn't like the idea of trying to flip the companies after a couple of years. Instead, Constellation focuses in one niche area and
Once they find a company they like, they buy it, they hold on to it, they put in, you know, management that they think can run it autonomously. And, you know, they give some help to it over time. But really, they just try to have a long-term relationship, much more like Buffett did with his companies versus, you know, flipping companies. Yeah, like the other question I have is like, why has the stock performance been so good and why has the company been so successful?
Part of it is that they've found businesses at low prices that continue to generate profits. You know, if you're buying a company at two times revenue, you know, it doesn't have to stick around to be profitable for all that long in order for you to get paid back and make that a good investment. You know, the other is like what they do with this money. They take the profits and they use that to fund their other acquisitions. They haven't issued a single share since they've been public.
in contrast to other companies that are funding their growth by issuing more shares. And so that means that their shareholders are reaping all of the value from the profits they're creating. Are there, you know, hidden companies like this all over the place in Canada? Or is this kind of like the one? I mean, my main reflection is just that, like, the world is so complex. Like,
Like, there are massive companies doing things that, like, you don't even know exist, but you rely on, like, every day. Right. And I think this one was a good example. Like, I didn't even think about who was making the, like, speed camera software that people were using. It's also, like, a relief from other tech billionaire coverage. Yeah.
Can I just say the thing I love so much about this guy as a founder is knowing nothing about him. Like, I would love to know less about CEOs. That's too much information.
anise you know the question i'm going to ask you who is making or losing money that is interesting to you at the moment okay well you guys have already talked about all these question marks and things to watch you know trump tariffs also we don't know who's going to be the next prime minister so what i've been watching as all of this sort of swirls is what's happening with canadian immigration policy because it's really tied to money in canada
And, you know, as of at least last October, immigration policy here was changing in kind of a big way. Yeah, this is a big story. And you've covered this a lot for the CBC, right?
I would consider you an expert. What changes are on deck? What is currently happening here? Okay. So we actually have to go back a little bit to give you some context. In older plans from 2023, Canada was going to admit 500,000 people as permanent residents in both this year and next year. But then a few months ago, they revised those plans. And by revised, I mean they cut them way back.
Instead of 500,000 people coming to Canada as permanent residents this year, 395,000 are coming. Next year, even less than that, 380,000. So overall, hundreds of thousands of fewer newcomers.
Right.
So before we get to, you know, the money aspect of it, there has been a massive shift in public opinion about whether we want more people in Canada or not. Is that right? Yeah, there's a big shift in popularity of immigration in Canada, at least according to a lot of different polls that are out there for a long, long time. Immigration had more supporters than it had people who didn't want immigration in Canada. But
But recent years has seen that flip. You know, a majority of Canadians who have responded to some of the polls we've looked at at CBC have said Canada has too much immigration now. Why do people want less immigration now than they used to? Isn't sort of being a welcoming place part of the Canadian identity? I mean, it certainly has been, but...
It really does come down to money and specifically housing and how much money it costs here. We've had more people moving to Canada in recent times than there are places for them to live. And we have not been building enough places for them to live to account for the amount of people who are moving here. So it's caused a big upward pressure on housing prices in Canada. It's not the only reason for upward pressure on housing prices. But it is a legitimate reason. At some level, there are just more people
And the same number of houses, relatively speaking. Yeah, exactly. You can sort of correlate...
the change in public opinion to when housing prices were called a crisis across the board in Canada. And you heard people complaining about them in places like Winnipeg or Regina or Calgary and not just our biggest cities. And a lot of this all got tied together because economists, housing experts, you know, you name it, they kept pointing out repeatedly in news stories and in, you know, public commentary, housing construction in Canada,
is not growing as fast as the population is growing. Right. So the easier thing to control there is the population increase rather than the housing production.
I mean, the government's been trying to work on housing production as well, but it hasn't been working fast enough for many people's tastes. And I think one tricky piece with that too, right, is like immigration is actually needed for housing construction. So I think like some of these pieces are kind of hard to like disentangle. Correct.
Correct me if I'm wrong, but the thinking of economists in general is that a growing population is needed for economic growth, right? Like, you know, maybe people are rejecting that now, but are there two sides to this argument that like maybe this will help housing costs or maybe it will hurt the economy? Well, yeah, if we talk about the point you're making there,
and how immigration can help the economy. When this announcement was first made, we heard from a lot of economists in Canada who pointed out really explicitly, Canada only avoided a recession in 2023 because of immigration. More people came here, so more people spent money that kept our GDP.
So if you cut immigration to a point where you are lowering the Canadian population, you risk actually lowering our GDP on purpose, which...
is kind of a recession depending on how long it lasts and what happens. Does it also make labor more expensive to have fewer people in your country so that the costs of things go up? Well, that's the other aspect is if there aren't enough people, labor becomes more expensive. Sometimes it doesn't matter that labor is more expensive. We just don't have enough people to do stuff. Right. There's a whole mishmash of factors that are pushing against each other here. I typically like, you know, believe that you
economic growth is good, that like if, you know, we're growing more, it typically raises people's incomes and raise their consumption. And that has all sorts of great benefits about making their lives easier, helping people live longer. You know, what's pretty interesting to me about the recent situation in Canada here is that like people's incomes are up meaningfully over the last couple of years, even in real terms, except, you
There's one big exception, which is housing. Like their incomes are not up versus housing at all. And it's actually gotten so much harder for them to afford housing. And it makes economic mobility feel like unattainable. And so it really just goes back to like,
what is the growth for? Growth is only good if it helps people get the stuff that they need to live better lives. And if more immigration is only going to boost growth at the expense of housing, like maybe that's not a good trade for Canada to make until you could solve the housing problem. That's what it seems to come down to every time. The flip side is that our federal government doesn't have a lot of tools to deal with housing. They have some. They can try to build more housing themselves. They can give money to provincial or municipal city governments to build more housing themselves.
but they can't always do everything themselves. What they can do unilaterally is say, okay, less people are coming to Canada, and then it's just done. They can make that decision. Right. They're controlling what they can control. Yeah. How much is rent? You can't afford it, trust me. Sarah Rieger, you are up. Who is making or losing money that's interesting to you right now?
The Canadian auto industry is worried it's going to lose a lot of money, which is for a lot of reasons. Trump literally said last week that the U.S. does not need Canadian car parts. And, you know, we're also waiting to see if literally every industry in our country is going to be subjected to tariffs. But I want to talk about a U.S. policy that might not be getting as much attention, which is the executive order Trump signed on energy, because it targets this specific part of the auto industry, electric vehicles.
Okay. I'm interested to know why American energy policy about electric vehicles is going to affect the Canadian economy.
But I want to start by, like, what was the executive order? So the order is focused on increasing natural resource production. Part of it ends what Trump called the U.S. mandate to increase electric vehicle production. So basically no longer advantaging more energy efficient stuff over less energy efficient. It looks like it likely will end federal rebates for purchasing electric vehicles.
And if you're in Canada like me, you might be thinking like, OK, I genuinely do not care what types of cars Americans are driving. But the problem is Canada has made a really big bet on what kinds of cars Americans will be driving and that they'll want to buy them from us. Presumably that means like Canada bet Americans are going to want to buy EVs.
Yeah. And first, I need to explain just how integrated auto trade is between Canada and the U.S. Half of the cars sold in Canada were made in America, and almost all of the cars we make are shipped to the U.S. It's one of those cases where we're more dependent on them than they are on us. We also make a lot of car parts, like think of companies like Magna, Linamar. So when the Biden administration started implementing regulations and incentives to increase electric car sales, can
Canadian auto parts makers saw this big opportunity to further kind of ingratiate themselves into that supply chain, as did our government. So in the last three years, provincial and federal governments have earmarked more than $50 billion to be spent on new EV battery and manufacturing plants. And that $50 billion investment is just government spending. It's not counting how much private companies are pouring into manufacturing and hiring. So everyone, you know, may still think that EVs...
are eventually going to win. So what's the danger here if Trump disincentivizes
purchase of electric vehicles in America? Like, what happens to Canada? Right now, EV sales are still growing a bunch, and our EV market is expected to make about $9 billion U.S. this year. But that $9 billion is with 88% of all cars we make being sold in America. So if Americans stop buying our cars and parts or stop making cars in Canada, that number would
And there's like tens of thousands of jobs that could be on the line in the industry. You know, there was this one small auto parts maker in Ontario who told the Globe and Mail that if the U.S. goes ahead with these changes, it would just devastate his business. Like it would be done. So even, you know, regardless of the idea that like Canada invested so heavily in making parts for electric vehicles and now oil,
Trump has decided to disincentivize electric vehicles for the biggest market for those car parts. There's also like the general threat of tariffs on everything, including stuff like this. Yeah, I feel like the auto industry is just a really good way to look at the tariff issue because it is such a like tightly integrated industry between the U.S. and Canada. Yeah.
Right. Because we make so many parts, the average vehicle crosses the border between Canada, the U.S. and Mexico eight or nine times. You know, a car might get its frame built in Detroit and then some engine parts added up in Windsor, Ontario, and then go back to Detroit to get
painted up and sold. So, you know, even a small tariff would hurt a lot on both sides of the border. We've actually seen something like this happen between Canada and the U.S. with auto parts before. There was a freedom convoy, that's what they called themselves, a protest that blocked the Ambassador Bridge in Detroit. And so nothing could cross the border between
at least the border where most auto parts crossed. And, you know, auto plants on both sides of the border sort of seized up, but it really illustrated how much moves across the border. And it's not something that you can fix quickly, right? If that trade stops, whether it's because someone blocked it or because a tariff makes it not attractive, you can't just be like, well, we'll do it somewhere else. If Americans wanted auto parts to be made in America,
You know, it would probably take years, you know, four or five years if you rushed to build a new plant to do that. Just because you say something doesn't mean you can't snap your fingers and automatically, you know, have a completely different auto industry.
Yeah, exactly. Exactly. One interesting perspective that I heard recently from an economist and specialist in tariff history named Doug Irwin was that if you actually looked back at the first Trump term and you just woke up at the end of it, like you heard we said at the beginning, they woke up at the end, you would have been pretty confused. There was a lot of talk about tariffs, but actually like the main ones really weren't, you know, all that big. And so his question was whether this is just like...
a tool that Trump is using for bargaining purposes, one which means people have to worry about it for years, but not necessarily one that would have the effects we might be penciling out right now. Right.
Is there any sense this is just like Trump saber rattling? It totally could be. But I think that saber rattling is really scary, just given the impact of, you know, if you've been... Sabers are scary, Sarah. Have you ever been on the wrong end of a saber? No, but it sounds terrible. Not interested.
All right, Sarah, tell the people what they learned. We learned that gas-powered cars are probably here to stay for a while. We learned that Constellation Software's success might be because the company is run by a wizard. Can't confirm. And we learned that the frenemy of housing supply is demand, and demand for housing has been juiced a lot.
Okay, that is it for our show this week. The show is sponsored by Wealthsimple. It is made by me, Devin Friedman, Matt Keres, Sarah Rieger, with Matilde Erfolino, Leah Fetter, and Jared Sullivan. Help from Juanita Leon and Allison Hopkins, fact-checking by Vernon Doherty, theme music by Andy Huckvale, and engineering by Emma Munger. And of course, special thanks this week to Anis Hidari.
The TLDR podcast is offered by Wealthsimple Media Incorporated and is for informational purposes only. The content in the TLDR podcast is not investment advice, a recommendation to buy or sell assets or securities, and does not represent the views of Wealthsimple Financial Corporation or any of its other subsidiaries or affiliates. Wealthsimple Media Incorporated does not endorse any third-party views referencing this content. More information at wealthsimple.com slash TLDR.