FOCUS 2025: Investing against the grain – Hugo Lavallée

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Wow. I hope you enjoyed that video.

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I guess Fidelity didn't like me blasting death metal music to clients before

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I walked on stage. A little bit embarrassing but see myself

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on stage. The camera does add five pounds, please remember that.

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Welcome. My name is Hugo, I'm a contrarian investor.

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Thanks for being here, thanks for staying.

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At this point I am between you and the lunch buffet.

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I'm standing between you and that first sip of afternoon margarita.

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If you're at home maybe I'm standing between you and an early

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start to the weekend so I appreciate it.

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Fidelity gives me these really tough spots as a closer, not

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sure why.

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I think partly because I'm more optimistic than Dan and we want to finish

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on a good note so here I am.

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I appreciate you being there.

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As usual, I prepared a little something, hopefully, you find it interesting

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Simplistically, there's two ways to make money in the stock market.

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The future will be different than the past.

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The future will be like the past. Let me give you some

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examples. The future will be different than in the past, Nvidia three years

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ago, brand new

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opportunity to really grow revenues.

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Nuclear stocks three years go, Fukushima, things are tough, nobody

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wants to do nuclear anymore.

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Germany, Japan, everybody's decommissioning nuclear

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and then there's the Ukrainian invasion.

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The world changes, we need power.

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Then eventually there was AI and the world changes for nuclear.

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Sometimes the future is like the past.

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Three years ago Netflix had negative subscriber growth for

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two quarters, three and a half years ago.

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Stock goes way down, people are concerned.

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There's the Squid Game hangover, there's COVID hangover and now

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things are back to normal, huge stock.

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Meta, three years ago things were really difficult.

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TikTok's gonna kill them, advertising is

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in a downturn, they're spending way too much on the metaverse.

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Nobody wants to see themselves in flying torsos in the metaverse.

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They're spending all their cash and then things normalized,

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was a huge stock, stock was up eightfold.

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Today, I want to tell you that I'm betting on

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I think the future will look a little bit more like the past and

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we're going to go back a decade.

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I'm going to put myself a little out there so please don't judge me too much.

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I'm quite bullish on Canada.

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I am bullish on what we call bad businesses.

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I'm bullish on commodities.

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I'm bullish on metal.

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I'm bullish on railroads.

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I'm bullish on mining equipment companies.

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I'm bullish on derivative companies, meaning drillers,

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companies that help mining equipment.

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I don't think we talk enough about it.

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I'm the only portfolio manager over the last two days that

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has a Canadian focused fund, Canadian Opportunities.

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We have a lot of good Canadian portfolio managers.

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Max Lemieux, we have the Discipline Equity Fund by the analysts, we have Reetu,

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we have Don, we have Darren but we've been very U.S.-centric,

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and why not? That's what has worked the last 10 years until this year.

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From January 1st, 2005 to January

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1st, 2025, the S&P 500 beat the

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TSX y 4.5% a year,

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and that over 10 years is a big number.

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That's the equivalent of 240%

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return for the S&P 500 total, 130

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for the TSX. IT's 110%, a doubling of your initial

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capital difference.

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This year, Canada's starting to outperform, and I think there's something

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happening there.

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I think it's important that we pay attention to the signal that the market's

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sending us.

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Basically, I think Fidelity Canada, we've done a good job the previous 10

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years, and I'm talking about the Canadian PMs.

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We've done a good job buying great companies, good companies.

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What we've noticed is their multiples have risen and

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risen and risen. They've got more and more and more expensive.

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The Canadian good stories went from 20 times earnings to

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25 times earnings to 30 times earnings to 40 times earnings.

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The U.S. good stories went from 30 times earnings to 40 time earnings to 60

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times earnings. Costco went to 60 time earnings, Howmet went to 70 times

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earnings. I think now what's cheap is

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the old economy stocks.

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They're certainly cheaper on a relative basis.

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Now, Dan wants you to believe that the cheap stocks are like BC and BOO stocks.

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I say life's too short, let's do something different, more interesting.

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I think old economy stocks are more interesting.

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We have to retrain a whole almost generation of analysts.

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We have analysts that only know a couple of things, U.S.

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always outperforms, growth always outperforms

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and doesn't matter what you pay for stock, multiples always expand.

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Now when you look at relative value I think a lot of it is

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into older economy things that Canada does.

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We're looking at, say, free cash flow yield on some of the miners, and at

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$4,000 gold they're almost 20%.

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$5,000 gold, they are almost 30% for some of the companies.

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You can buy a driller that does exploration for the miners

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and it might be less than 10 times earnings.

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You can buy copper gold porphyry at seven, eight times earnings.

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As people are chasing other things

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that's what I'm trying to focus on.

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I'm trying to focus on older school economy.

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The reason for that, why it's

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working and why the world's changing is financial repression.

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What is financial repression? In my head

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events or the heavy hand of the government not allowing you

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to compound your capital fast enough.

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It might come through different forms.

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One of it that we're hearing again is yield curve

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control, quantitative easing.

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Outside of COVID we haven't done quantitative easing in over 10 years.

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The governments took a lot of debt during COVID, now we have a problem.

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For some reason I don't understand, in Canada and the United State we didn't

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finance our debt long term enough.

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For some reason ... rates were all-time lows, generational lows, probably lows

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we'll never see again in our lifetime, and we weren't financing 30 years.

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So now rates have gone up and we have to pay

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more. It's a problem because the central

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banks can cut rates but what happens to the 10-year or

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the 5-year where things are financed like cars, like homes, like boats?

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Yield curve control, quantitative easing, that's one aspect of financial

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repression.

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Another aspect of a financial repression could be capital control.

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I don't want to be too out there but you see what's happening in

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France right now, what if you have to

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keep your money in France into euros, buy bonds?

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In Canada it might happen, right?

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We want to invest in our country, we want to protect our country.

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What if the big pension funds are told that you have to

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invest more in Canada?

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That's one kind of financial repression because in theory you might be

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accepting a lower rate of return as a pensioner but you're doing it for your

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country.

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I guess I'm old enough to remember when I started at Fidelity the RRSPs,

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you couldn't do 100% foreign, they were 30% limit.

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We spent the '90s in Canada where we had a lot of debt, we had debt issues, you

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couldn't invest more than 20% in your RRSP outside of Canada.

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I'm not saying all these things are going to happen, I'm just

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offering possibilities.

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I think the world is changing.

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I think it's a little bit crowded on the sound good stories.

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I think we're trying to retrain our analysts to tell them,

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no, no, no, we can't buy miners.

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No, no, we can't by mining equipment companies.

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We've basically ignored these stocks for 10 years.

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I mean, we covered them but we didn't go to any conferences for these

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companies. That's not where the action was.

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Now we're going back to these conferences.

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December, I'm going to a mining conference.

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January, I am going to another mining conference and everything related.

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It's so bizarre to revisit those companies.

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Sometimes it's the same people so it's a little awkward, it

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kind of sounds familiar. I call it, it's like getting back with your ex.

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It's weird, it feels wrong yet you're doing it.

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Feels a little dangerous, it's definitely awkward.

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Hey, I'm back, haven't spoken to you in 10 years,

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you know, to your old in-laws.

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But we're doing it and the whole team is on it and I'm quite proud about

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it. There's a lot of experience on the Canadian team from Andrew

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Marquese, our CEO, down.

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A lot of us have lived through ... when I joined Fidelity in '02,

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I mean, '02 was a weird time because it was three years of negative U.S.

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returns. Then in '05 gold moved

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but in '05 oil started moving.

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Then from '05 to 2014 Fidelity Canada did a pretty good job

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investing in commodities. We didn't do as much as Dynamic

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but we did more than most.

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In 2014 we were able to

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change and pivot.

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I kind of feel the same energy.

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Hopefully, we'll be right.

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It's been tougher this year because there's been a big change.

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If you look at the Toronto and Montreal based PM, that investment to Canada,

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it's definitely been tougher this year for us because there has been a change

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in leadership, and we're changing that change in leadership

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because I think there's things happening there.

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I want to conclude with this.

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I was having lunch with my dad two weeks ago.

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He always wants to do lunch and I always offer him

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30 minutes and he never wants to do that.

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Finally, I had an opening and we did lunch, and it was nice.

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He asked me, he's like, what do you think about the

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stock market? It's really high.

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I reminded my dad, I'm an expert on stocks not the stock

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markets.

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I told my dad, I don't know

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but what I want you to remember is you cannot afford to get ahead,

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that's what financial repression is.

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You cannot compound your capital less than inflation

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and everything's getting more expensive and it's been a problem for

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our pensioners that have been maybe too conservative.

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It's a problem from young people.

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I reminded my dad, cash might feel really

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good for a short period of time. We're monitoring what's happened this week.

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There's been fraud in private credit in the United States.

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We were really working on it yesterday.

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Generally, I think we have to keep our eye on the ball, you cannot afford

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to not compound your capital, not in this market.

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There's the heavy hand of the government.

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There's a lot of debt around the world.

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They're going to try to inflate their way out of it.

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They might put pressure on the yield curve to boost the

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economy.

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I think about my in-laws who are 86 and 80.

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They've just been eaten by their purchasing power.

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It's been destroyed over the last five years.

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I remain optimistic.

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I mean, dare to say we have a new prime minister, hopefully

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we can fight a little bit less between provinces.

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We have somebody that's more focused on economics.

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We don't speak to the Prime Minister, I don't speak to the Prime Minister, nor

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the cabinet. We talk to people that do speak with him and them.

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The message is positive.

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I'm quite optimistic and I think we're probably not talking enough that

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Canada's doing better and Canada's beating the S&P

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500.

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With that, will you join me on stage, please?

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Hello, investors. We'll be back to the show in just a moment.

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I wanted to share that here at Fidelity, we value your opinion.

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Please take a few minutes to help us shape the future of Fidelity Connects

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podcasts. Complete our listener survey by visiting fidelity.ca/survey,

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and you could win one of our branded tumblers.

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Periodic draws ending by March 30th, 2026.

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And don't forget to listen to Fidelity Connects, the Upside, and French

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DialoguesFidelity podcasts available on Apple, Spotify, YouTube, or wherever

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else you get your podcasts. Now back to today's show.

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Thanks for having me on your show.

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I know they pay you half for my session, right?

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You don't work as hard.

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I haven't negotiated that yet.

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It was interesting to hear you say old

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economy and sort of back to basics and it makes — is that beer?

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I cannot.

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[indecipherable] right here.

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Where's mine? Okay, we can start again.

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There's no alcohol in this I should say.

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It looks like beer, that's why I drink it. Let's stand up and walk back and sit

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down.

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Old economy, it makes me think of in the late '90s we heard

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a lot about new economy and it was tech, telecom and health care.

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Anybody that was interested in rocks and trees and drillers and all the things

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you just mentioned, that was old school and nobody wanted to talk about it

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anymore. We know what ended up happening with that.

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It's refreshing to hear you talk about those sectors again.

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Morningstar at the end of last year gave you some great accolades and they said

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you've done very, very well for many people because your contrarian approach,

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when it pays off it's done extremely well for investors.

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What you're talking about now takes patience, doesn't

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it?

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Well, it certainly leads to different funds so we'll see.

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I'm tired of being patient, frankly.

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I've been patient enough with those transport stocks.

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I've owned them for two and a half years.

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That's one area that I like kind of

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unrelated, or related a little bit, to what I was saying.

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Two, two and half years ago I started buying transportation stocks.

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U.S. PMIs were negative, ISM PMI Index.

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Normally, they stay negative for 18 months on average.

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It's been three years now so it's the longest cycle.

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Our data goes back to 1947, it's been the longest data since we've been

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in a freight recession.

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It hasn't been super deep like 2008 but it's been just

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super long. A lot of people in the industry, 30, 40-year

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veterans say it's the worst cycle I've ever seen.

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I'm attracted  to that.

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That's about

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10% of Greater Canada. That's where we're being patient and it's been a real

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pain being patient. I think it will work, I think those are good relative

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value. We'll see, we might be getting a supply shock

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in trucking. I don't know if people are paying attention but you saw what

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happened here with the accident in Florida and the enforcement of rules on

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English language and non-domicile. Even though demand is

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weak you might get a supply shock. Another area we're getting a

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supply shock is in copper.

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I talk a little bit about copper gold porphyry.

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Copper and gold tends to be together

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in geology so some of these copper names are turning into gold names.

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I've been kind of interested in copper .I like mining.

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When mining gets tight it gets really tight but demand's been weak.

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In China half of the global demand for copper, it's not doing super well

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but then all of a sudden we're having issues with our mines.

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We have four problems.

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Cobre Panama is closed in Panama.

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There was a seismic event in the Congo for

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Ivanhoe mines so they're under-producing.

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QB2, Teck Cominco, they're having issues.

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Unfortunately, we had a big event, a

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mud rush at Grasberg, which is Teck's biggest

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mine, one of the biggest copper mines in the world, seven people lost their

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lives. Force majeure, I guess,

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force majeure, I do speak French, mine's closed and

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all of a sudden copper's tighter.

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The world is shrinking.

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What I mean by that is there's less places to go, it just feels more dangerous.

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Even when we're doing mining we're watching where the mines are.

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Canadian miners are not as welcome as they used to be, say, in Africa.

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Some of them are more aligned with China. They've kept investing over 10 years

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there. Even in West Africa some of the countries are more aligned with Russia.

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It's creating issues for some of our miners so we're watching where the assets

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are. I don't remember what your question was but I can keep going.

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Basically, there are

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some pockets that I own that are supply shocks happening and

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the world just feels a little bit different and they're all related

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to kind of old world economy and that's what I'm focused on.

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I was asking about patience because you had said, I think you'd

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said transportation is something that you get frustrated with.

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Have you ever had that area that you've been focused on and you get

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to the point where you say, I've got to make a change and then it ends up

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paying off and you learn from that?

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You feel like a complete — yeah, absolutely.

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Well, no, but it's learning. The patience is tough because you have so much

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coming at you. We were talking about old economy, new economy, it makes people

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think that that's never going to come back and inevitably it does.

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I think Mark once said that he wished he was more patient like

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Dan and I. I don't know if, I think patience is

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my number one attribute. I think patience is my worst attribute also as a

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portfolio manager. I'm trying to balance. I've got 10% in transport

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but I'm also focused on miners and things like that where things are happening.

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Patience is important but you need some stocks to be

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working. What I tell you, the big changes that we did is a lot of stocks that

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were working were expensive.

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I can't overemphasize that.

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We've seen our stocks go up and up and up and multiple go up and we knew it,

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right, we know they're too expensive.

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We know the 10-year compounded return from here is going to be tough but

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they're working so we're keeping them.

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I'm slowly selling but we're keeping and keeping.

[00:20:06.738]

All of a sudden over the last two, three months, poof, they stopped working and

[00:20:10.309]

they're going down, and other things are working.

[00:20:12.911]

To me, that's a signal in the stock market that we need to make

[00:20:16.882]

some changes.

[00:20:17.716]

In your latest top 10 that was disclosed,

[00:20:21.720]

Westinghouse Airbrake Technology is one or two.

[00:20:24.690]

That's a play on transportation.

[00:20:26.625]

Do they make for trucking or trains, what do they do?

[00:20:28.660]

They make the trains.

[00:20:29.628]

One way to fight financial repression is to buy a business that has

[00:20:34.967]

pricing power.

[00:20:37.769]

The stock's been a little bit tougher lately because people are afraid about

[00:20:40.539]

the rail mergers in the United States. If they go true is that going to cut

[00:20:43.375]

capex? We really struggled to sell that stock because

[00:20:47.746]

it's a really good business with pricing power and

[00:20:50.449]

U.S. might be a little tougher but they're getting big orders from other areas

[00:20:54.286]

in the world, where there's more than North America in the world There's

[00:20:57.623]

Africa, there's Kazakhstan, there's all these places and

[00:21:01.560]

there's just not a lot of competition in locomotives.

[00:21:04.396]

What other contrarian areas are you looking at now?

[00:21:09.868]

Well, I talked about transport.

[00:21:11.770]

I do think that some of these mining stocks, maybe they don't

[00:21:15.741]

feel contrarian because they've gone up a lot lately but they're

[00:21:19.745]

coming back to Canada. I don't know, did you hear a lot about that the last day

[00:21:23.482]

and a half?

[00:21:27.719]

It feels to me a lot of people are in the same stocks and I think there's other

[00:21:31.490]

things happening and we want to focus on it.

[00:21:35.227]

That would definitely be part of it.

[00:21:40.666]

From an activity standpoint when you think back to the spring, Liberation Day,

[00:21:44.836]

was that an exciting day for you?

[00:21:47.906]

Yes, in a way.

[00:21:51.176]

We did have one contrarian moment this year.

[00:21:53.345]

It lasted about four days, Liberation Day.

[00:21:56.682]

That was good.

[00:21:59.518]

We're very active.

[00:22:01.820]

I think that's where I'm at my best, frankly.

[00:22:04.556]

S&P is down 20%, there's a bunch of cheap stocks.

[00:22:09.061]

If the S&P is down 20 a bunch of stocks are down 30, 40.

[00:22:12.798]

We were really active.

[00:22:14.599]

I'll give you two examples that were disclosed at the end of June 30th.

[00:22:18.503]

These are not recommendations for these stocks today but it was disclosed that

[00:22:21.773]

I bought these stocks.

[00:22:23.442]

In Greater Canada I bought Shopify.

[00:22:25.377]

We like Shopify at $70 U.S.

[00:22:27.312]

I think it must have been there three minutes.

[00:22:30.015]

We bought a lot of Shopify between 70 and $75, and then it doubled.

[00:22:34.886]

In Canadian Opportunities I buy Aritzia.

[00:22:37.356]

Vietnam tariffs, really, really tough, stocks down 20% that day.

[00:22:41.126]

Most volume there's been since COVID.

[00:22:43.228]

Stocks done from 70 to 40.

[00:22:45.864]

We like it, we like their U.S. strategy.

[00:22:48.533]

Those were examples that I did that day.

[00:22:52.137]

I'm very lucky when these events happen.

[00:22:54.906]

To me, there's three things that help me in those moments.

[00:22:59.544]

Napoleon had a quote

[00:23:03.648]

which was activité, activité, vitesse.

[00:23:05.817]

Basically, you're working all the time.

[00:23:09.121]

Michael spoke about it a little bit earlier.

[00:23:11.590]

You work all the time so then when something happens you're ready.

[00:23:15.927]

It's not like I'm opening the Aritzia now report and like, oh, what did they

[00:23:19.197]

do? You've done a lot of work ahead of time and

[00:23:23.835]

you're ready. You're ready to

[00:23:28.306]

encircle your enemies and skate to the puck, whatever analogy you

[00:23:32.377]

want to use, before the competition but you're already.

[00:23:35.380]

Two, it is a mental mindset not to be scared.

[00:23:38.316]

A lot of people get scared in those moments.

[00:23:40.218]

That's one thing I'm good at.

[00:23:42.654]

The other thing I'm really lucky is I have a partner that — I think I'm pretty

[00:23:46.792]

involved with the kids, I try to attend everything.

[00:23:50.328]

I cook dinners.  Hugo dinner, Daddy dinner

[00:23:54.933]

during weekdays might be Uber eats but I do cook on

[00:23:59.337]

weekends. I'm quite involved. But when those moments

[00:24:03.475]

happen ... I'm very lucky, I tell my wife, I'm out, I need

[00:24:09.881]

to work. She's a very patient woman.

[00:24:12.651]

I told her yesterday that Andrew Pastor, Edgepoint,

[00:24:19.090]

good guy, good track record. He texted me yesterday, I'm coming to Montreal, we

[00:24:21.927]

should have dinner on Monday. Perfect, I made a reservation.

[00:24:24.629]

Then I told my wife, she reminded me it was our wedding anniversary.

[00:24:29.534]

So I told her, well, if Andrew cancels you can come.

[00:24:35.106]

She's very patient. In those contrarian moments I ask her to

[00:24:40.345]

free up my schedule, and she does.

[00:24:44.416]

What were you saying earlier about dating an ex-girlfriend?

[00:24:48.987]

That we don't discuss.

[00:24:52.424]

The Napoleon quote, which I won't repeat,

[00:24:56.361]

about being ready, how does ... and Dan talked about big

[00:25:00.899]

blocks that he would buy ... how does Fidelity's economy of scale ...

[00:25:04.836]

you've got ideas of what you want to do and execute on and then Fidelity is

[00:25:08.507]

able to get that done for you fairly quickly, I would imagine.

[00:25:11.176]

How does that economy of scale impress you and help you?

[00:25:12.944]

We're lucky that we don't do the trading.

[00:25:15.146]

When things happen we have traders

[00:25:20.585]

that take care of it. They show liquidity to us. In moments of panic

[00:25:25.123]

there's offering hitting Fidelity and I think Dan and I

[00:25:29.261]

like in those moments. We're a little bit in different waters but being a

[00:25:33.532]

supplier of liquidity when people are forced sellers, when people have to sell,

[00:25:37.736]

being able to buy on those opportunities.

[00:25:42.107]

Steve DuFour was up here at the beginning of yesterday and he talked about the

[00:25:46.211]

number of holdings he has. He said it's because of the size of his monitor and

[00:25:50.215]

what he can see. There's probably some truth to that.

[00:25:53.285]

You have 87 stocks or thereabouts in your portfolio, is that

[00:25:57.255]

by design or is that just the way it is today?

[00:26:00.892]

My monitor's a little bit bigger or wider than Steve, I guess.

[00:26:05.730]

I try to do 50 to 100.

[00:26:08.867]

In Climate I can get to 50, in the other funds it's tough.

[00:26:13.004]

For me, what's more interesting is your top 20

[00:26:17.075]

concentrated so

[00:26:21.012]

that I try to do. The rest, I mean, Fidelity, there's people that have

[00:26:25.050]

run great portfolios with 30 stocks.

[00:26:26.918]

There are people that run great portfolios with 800 stocks.

[00:26:29.821]

I don't think there's a lot of signalling in there.

[00:26:32.223]

For me, I try to do 50 to 100.

[00:26:35.126]

I do need to own Canadian content so sometimes

[00:26:41.466]

you've got to spread the love a little bit but. Look, the name count's going to

[00:26:44.903]

go up if we're doing more commodities. That's actually an

[00:26:48.940]

important point to make.

[00:26:50.742]

There's nothing worse than having a thesis, oh, I like copper

[00:26:56.648]

and you buy one copper stock and it's the one stock that something bad happens.

[00:27:01.319]

It's the absolute worst.

[00:27:04.255]

Especially if we're going to do a little bit more commodities, if we've going

[00:27:06.458]

to invest a little more in Canada the name count's going to go up a little bit.

[00:27:10.261]

When you were an analyst what was your favourite sector?

[00:27:14.399]

As an analyst?

[00:27:16.001]

Yeah, because you covered, I'm sure, many.

[00:27:18.336]

My least favourite sector was gold, that's for sure.

[00:27:23.842]

Dan and Max almost died visiting a gold mine in South Africa.

[00:27:27.479]

They were going down the shaft in a

[00:27:31.416]

jeep and they ran out of brakes so they had to slam

[00:27:35.520]

the jeep into the side wall to not crash at the bottom of the shaft.

[00:27:40.158]

I only visited one gold mine after that.

[00:27:47.632]

At Fidelity as an analyst you want to make people money and I was lucky to

[00:27:52.103]

cover Research In Motion when it was a good stock and Fidelity was the number

[00:27:56.007]

two shareholder, the stock went up 30-fold. I

[00:28:00.145]

still think to this day Will Danoff only remembers me because of

[00:28:04.282]

Research In Motion, and that's okay.

[00:28:06.317]

You have to make money for people.

[00:28:08.753]

Will said yesterday, I don't know if you caught it, but that might have

[00:28:12.857]

changed my career at Fidelity.

[00:28:15.427]

When he said yesterday a stock went from 15 to 30 and the analyst, oh, I

[00:28:19.464]

missed it, but if it's going to 300 you haven't missed it.

[00:28:23.768]

I cannot overstate how much that changed my career at Fidelity.

[00:28:28.640]

Give me 30 seconds to explain the story.

[00:28:31.810]

Will always talked to the team twice a year, January and July.

[00:28:37.215]

I'm struggling. I got a sell on Research In Motion, the stock's multiplied

[00:28:41.219]

by three. We're like summer of '03.

[00:28:44.422]

Will said, basically, this exact quote, not because it's gone

[00:28:48.359]

way up but you've missed it. I booked a trip to Waterloo the

[00:28:52.430]

next week and went to see RIM and I saw that the world was changing.

[00:28:56.301]

I came back, I upgraded it, we bought a fair bit of it and I think

[00:29:00.305]

it really helped me. That's one of the great things at Fidelity that propelled

[00:29:04.075]

my career.

[00:29:05.043]

As a portfolio manager I was able to do that with Constellation Software.

[00:29:08.747]

Went public at $17, I was trying to buy

[00:29:12.684]

it at 32, it was 35, ended up buying at 90

[00:29:17.222]

thinking ...

[00:29:19.457]

I bought $90 million at 90 in 2012, and it's

[00:29:23.762]

$4,000 and it kind of helped me in my career as a portfolio manager.

[00:29:28.266]

That excludes all the dividends and the spins and everything else.

[00:29:30.969]

I think it's important to have a couple of those in your career at Fidelity and

[00:29:35.006]

I was just glad that Will talked about that because I think that's one thing

[00:29:38.276]

Fidelity's good at.

[00:29:39.177]

Who else did you learn from at Fidelity?

[00:29:41.613]

Who else was inspiring to you?

[00:29:47.752]

I was really struggling 10 years ago, I think, on Valiant

[00:29:51.923]

and I went to see Joel Tillinghast in his office and

[00:29:56.060]

in 40 seconds he was able to explain to me why he also thought

[00:30:00.165]

the stock made no sense. He was comparing adjusted

[00:30:04.636]

earnings to free cash flow. I

[00:30:09.941]

won't use the terms he used because, you know, but

[00:30:14.279]

he was looking at the earnings like, look, they're amazing, and look

[00:30:18.249]

at the cash flow, it sucks. Within six months it was done

[00:30:22.487]

and it was the biggest stock in Canada. It was amazing that he was able to

[00:30:26.558]

pinpoint very easily what to look at

[00:30:30.662]

and there was just something  ... I had a gut feeling that something was wrong

[00:30:34.165]

and he was just able to express it financially very quickly.

[00:30:39.571]

How do you decide when you see a stock that you need to ...

[00:30:43.241]

that you're very interested in, how do you pick your least favourite that's

[00:30:47.145]

within your portfolio if you want to make a change?

[00:30:51.749]

Relative strength, stock that you've been holding on and

[00:30:55.753]

you don't have a lot of upside anymore, the market's not giving you

[00:30:59.691]

a warm and fuzzy feeling, stock's not working, it can

[00:31:04.696]

be many different things.

[00:31:05.763]

How would you know that you don't have a lot of upside anymore since Will

[00:31:09.133]

taught you that you should hang on?

[00:31:10.802]

Well, to be frank, a lot of these stocks that I still held that

[00:31:14.873]

were 40 times earnings you know that compounded over 5 or

[00:31:19.210]

10 years it's going to be tough to make a lot money but you don't know where

[00:31:22.814]

it's going to end  so you keep them a little bit and when you have a better

[00:31:26.851]

idea then you can sell it.

[00:31:28.219]

we've got to train a little bit young people that that's not the only game in town,

[00:31:31.689]

there's other things happening.

[00:31:34.626]

We're really trying hard to do that now.

[00:31:37.328]

I know you like your 50 times earnings stocks but I think there's other things

[00:31:40.365]

we need to focus on and we're trying to do that.

[00:31:42.967]

You have a very small amount in the UK in your Greater Canada

[00:31:47.105]

Fund so so it just shows for a portion of the fund you can go wherever you

[00:31:50.909]

want. How do you get those international names?

[00:31:53.645]

How does that come across your data?

[00:31:55.146]

I'm putting all of my three funds into a mining lens.

[00:31:58.016]

The price of gold has gone up so

[00:32:02.220]

much it's creating a wall of cash flow to the miners and

[00:32:07.558]

they're saying they're going to have financial discipline and they are going to

[00:32:11.396]

pay dividends and do whatever, and I don't believe them.

[00:32:15.400]

I believe that miners like to buy trucks, they like to

[00:32:19.470]

buy shovels and they like to dig holes

[00:32:24.242]

and that's why ... and it's all different in the funds.

[00:32:26.778]

In Ops I have to do a lot of mining stocks because that's what's in the

[00:32:30.381]

benchmark.

[00:32:31.282]

In Greater Canada I have a little bit more flexibility but the funds also

[00:32:34.118]

larger so I'm buying more like mining equipment companies.

[00:32:37.855]

We are technically better companies, they're a little bit more expensive but

[00:32:41.459]

they tend to have pricing power. We haven't had a mining capex cycle in 10

[00:32:45.163]

years. In Climate Leadership the fund is smaller, I can buy more

[00:32:51.302]

connected industries, companies that do exploration drilling,

[00:32:56.274]

remote camps. There's these businesses ...

[00:32:59.944]

we haven't thought about these stocks for 10 years, remote camp,

[00:33:03.915]

they're like cabins that they rent for the workers, when you think about

[00:33:07.352]

Canadian Arctic defence and these projects that we're going to build.

[00:33:11.122]

By the way, I think we're going to build more of these projects.

[00:33:12.824]

If you look at what the U.S.

[00:33:14.525]

administration is doing by taking position in some of these projects, they've

[00:33:18.997]

done it for Lithium America, they did it for one of the Alaskan projects.

[00:33:23.134]

You see what we're doing in Canada, we're calling a few

[00:33:27.138]

projects national interests, whatever terms we're using,

[00:33:31.142]

and I think there's a high probability that these things would be built.

[00:33:34.679]

We're trying to get ahead of that and positioning the funds for these.

[00:33:39.250]

Question came in about old economy, mining, metal, etc.

[00:33:42.587]

How do you anticipate regulatory headwinds or tailwinds?

[00:33:46.057]

That's a good question. I think I just a little bit answered regulatory

[00:33:49.594]

headwinds. In Canada it's a little bit

[00:33:53.598]

different between the provinces but I think there's a focus in the federal

[00:33:56.634]

government both sides of the border. This is national security, the

[00:34:00.738]

world is shrinking. Look what's happening with rare earths.

[00:34:04.075]

We need these materials and we're going to build them and we're going to find

[00:34:08.212]

some ways, just like in Canada we might change some laws.

[00:34:10.415]

That's kind of addressing one

[00:34:14.385]

of the headwinds historically.

[00:34:17.355]

I think the big thing, too, is where is the deposit.

[00:34:19.991]

Barrick took,

[00:34:24.062]

I think, a $1 billion impairment charge because in Mali they came with the army

[00:34:28.099]

and they took the mine away.

[00:34:30.001]

My understanding, there was three tons  of gold there and they just took it.

[00:34:36.874]

When we're looking at the world, where are the assets?

[00:34:39.043]

In Canadian Ops I own a couple of companies that

[00:34:43.214]

have African assets but they're repivoting

[00:34:47.652]

to Canada and the future is there, so I think that makes sense.

[00:34:53.191]

That's how I deal with it.

[00:34:54.625]

Are there other areas of the economy that you want to share with us?

[00:35:00.198]

No. I mean, I could talk about A but I don't know if you want my opinion.

[00:35:03.701]

Actually, we want your opinion on AI as a contrarian investor.

[00:35:11.742]

I missed it, basically.

[00:35:14.212]

I had a few winners in '23 but I mostly missed it.

[00:35:17.815]

I apologize for that. The cosmos was sending me signals and I wasn't paying

[00:35:21.385]

enough attention.

[00:35:25.623]

I guess my view is a little bit tarnished by

[00:35:30.261]

... I joined Fidelity in '02 and I saw the tail end of '99, what happened

[00:35:34.365]

on the other side of it.

[00:35:36.534]

It was not pretty. At this

[00:35:40.538]

point I think the circular reference that's happening between

[00:35:44.775]

the financing is not a great sign.

[00:35:49.747]

I do enjoy my Gemini when I do a Google search but

[00:35:53.818]

I think it's not ready for prime time in enterprise.

[00:35:57.221]

There's a FOMO aspect to

[00:36:01.192]

it, the fear of missing out, of creating a digital god that's got to suck this

[00:36:05.329]

profit pool out of every company.

[00:36:07.765]

That will last for a while but I

[00:36:11.702]

think on the other side of it there's not a lot of recurring revenue.

[00:36:13.938]

I'm just interested in other sectors.

[00:36:18.843]

I don't understand, as a contrarian investor, you apologized for

[00:36:22.980]

missing AI but aren't you more of a complement to it?

[00:36:26.717]

I wouldn't expect you to become a portfolio full of AI.

[00:36:28.686]

People trust you with their capital. I mean, I only own my funds.

[00:36:31.689]

I don't do PA stocks.

[00:36:34.425]

I can't remember last time I bought a stock outside of Fidelity.

[00:36:39.830]

All my money's in my three funds.

[00:36:42.200]

I want to compound capital.

[00:36:44.035]

I wish I would have owned some Nvidia. So no, absolutely not.

[00:36:47.705]

I think I failed there.

[00:36:51.108]

I can't go back and turn the clock back but I have to move forward from

[00:36:55.346]

here. I think from this point on I think there's other things happening in

[00:36:59.450]

the stock market that we're not talking enough about.

[00:37:03.087]

So I'm putting myself out there a little bit.

[00:37:05.656]

We talked about Canada, we talked about mining, we'll see what happens.

[00:37:09.927]

Okay, so given that where do you fit within a portfolio?

[00:37:15.433]

I mean, contrarian, it's its own thing.

[00:37:19.237]

I thank people for their patience.

[00:37:22.873]

We did a French breakfast this morning, clients were asking, what do we tell

[00:37:25.910]

our clients? Well, what did you tell them when you sell the funds?

[00:37:31.916]

I think I'm working super hard.

[00:37:33.985]

I'm 46 years old, it's not like I'm not

[00:37:37.989]

working. I work six days a week.

[00:37:43.694]

I don't want to oversell this but I work till 10:00 or 11:00 four

[00:37:47.765]

days a week. I work on Sundays. I want to do well.

[00:37:50.801]

I want to keep compounding my capital.

[00:37:52.503]

That's why Global Equity+, right,

[00:37:56.974]

Glen, has been so good because I'm sucking wind, Mark's

[00:38:01.946]

doing amazing and at some point, hopefully, things will be different.

[00:38:05.650]

We want to keep clients in the game.

[00:38:07.652]

It's the most important thing, keep clients invested.

[00:38:11.622]

Financial repression, compound your capital.

[00:38:15.493]

I think that's why Global Equity+ has been such a success for us.

[00:38:19.196]

I guess that's a third of that so maybe I should be a third of portfolios

[00:38:21.899]

because that's been a big success for us. I'm happy that it's selling

[00:38:25.870]

well because to me that fund has great retention.

[00:38:30.875]

It's important to keep the people in the game.

[00:38:33.778]

We are our worst enemies financially.

[00:38:38.416]

When Liberation Day happened for two weeks our number one seller at Fidelity

[00:38:42.019]

Canada was our cash fund. The market is down 20%, we're selling

[00:38:46.057]

short term bonds That's what people wanted to buy.

[00:38:49.093]

You have to look in the mirror and

[00:38:53.331]

say we're not very good at picking our spots.

[00:38:56.701]

We want to pick something that we believe in and stay invested.

[00:39:00.738]

Awesome, and thank you for your hard work.

[00:39:03.174]

Because we have a minute and a half left I'm going to ask you one fun fact

[00:39:06.911]

about you, and that is, what's your favourite holiday or celebratory

[00:39:11.082]

time?

[00:39:13.217]

There's quite nothing like Christmas morning but in my family, so give

[00:39:17.321]

me a minute, I'm known for Halloween and

[00:39:22.126]

probably like it a little bit too much.

[00:39:24.228]

I have these animetrics like everybody else.

[00:39:26.497]

My wife hates them because they're in the garage for 364 days.

[00:39:29.900]

They come out in the sun for about 24 hours.

[00:39:33.471]

The big deal, the one thing I'm known for, and

[00:39:37.942]

I've copied this ... we trick-or-treated once with my family in Arizona

[00:39:41.879]

and just the house blew me away.

[00:39:45.449]

I have a farmer friend who has a white van with a sliding door and

[00:39:49.587]

we turned it into an abduction van.

[00:39:54.091]

We write free candy with a reverse Y, or in French

[00:39:58.362]

bonbons gratuits with a reverse S.

[00:40:00.030]

We wear overhauls and we wear scary clown masks.

[00:40:04.335]

We ask kids if they want to come and pet the puppies, or who

[00:40:08.539]

wants to get in the van and get some candy? We're not crazy.

[00:40:12.676]

We leave it parked on my house, we don't drive it around.

[00:40:17.314]

We're intense but we're not maniacs.

[00:40:22.019]

The reward is you get full-sized chocolate bars.

[00:40:27.425]

I buy a couple of these Costco chip bags for $8 so if you have

[00:40:31.362]

a cute unicorn or somebody's three years old you give them the bag.

[00:40:34.565]

The bag's bigger than them.

[00:40:36.634]

My daughter who's 14, she tends to be in the van.

[00:40:39.503]

There's bed sheets, there is blood, it's pretty cool.

[00:40:43.240]

I really like it. I like it a little bit too much considering it lasts three

[00:40:46.477]

hours.

[00:40:48.679]

Halloween at my house is fun.

[00:40:50.815]

I hope you have good liability insurance and good luck getting back across the

[00:40:53.751]

border. Hugo Lavallée, everybody.

[00:40:57.455]

Thanks for watching or listening to the Fidelity Connects

[00:41:01.392]

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The views and opinions expressed on this podcast are those of the participants,

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Thanks again. We'll see you next time.