We have a jam packed show today! Ernest and Barry discuss inflation and what it means for your portfolio. The guys talk about weird Constellation Software rights offering and what options one has. Then they review earnings from Copart and Adobe. And then the feature conversation is a review of the investor days for both Brookfield Corporation and Brookfield Asset Management.

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Episode transcript

Hello and welcome to the Long Term Investing podcast with Baskin Wealth Management. I’m Barry Schwartz, Chief Investment Officer. Baskin Wealth Management is an independently owned investment management firm with almost $2 billion in assets under management, providing customized wealth management solutions and services to families and foundations. In this podcast, we ignore all the noise and have conversations that make sense about the things that matter in today’s markets. It’s what we talk about with each other here in the office and we want to share those conversations with you. Please stay tuned for our legal disclaimer at the end of the episode.

Barry Schwartz

Thank you for joining me. Ernest Wong, how are you doing today on a sunny Tuesday?

Ernest Wong

Doing well.

Barry Schwartz

Good. Glad to hear. We’ve got a number of things we want to run through  Earnest today, of course, the Canadian CPI. The Canadian inflation number was released and it came out a little hotter than expected, probably due to energy prices. Gasoline prices ticking up, as well as many people talking about mortgage interest costs also affecting inflation. So when they raised interest rates, of course, people’s mortgages are going up. How are we going to get away from that kind of spiral? Because as more people’s mortgages come due, if they have fixed mortgages, all we’re going to see is higher interest costs for them.

Ernest Wong

Well, that’s the point of higher interest rates, right, is that if you’re going to have to spend more money servicing your mortgage, then you have less money to buy TVs and cars and all that kind of stuff.

Barry Schwartz

Well, that’s what we’re kind of seeing, right? So people are spending less money on those kind of things. On those, we’ll call them the non discretionary or discretionary goods. And we’re also seeing, despite, obviously this is not a political podcast, but despite what Justin Trudeau is saying about food prices, we saw food prices actually drop month over month in August versus July. So it’s interesting. I don’t know what to make of it. Inflation, of course, is at 4% in Canada. The Federal Reserve, the Canadian central bank, they want to see inflation drop to 2%.  I assume that will happen at some point. I guess we just got to be patient. But the bottom line is, what does it mean for your portfolio, for your stocks, for investors going forward with your take?

Ernest Wong

So, after today’s inflation figure, the market implied probability for a rate hike is now about 42%.

Barry Schwartz

US or Canada. Canada. Canada.

Ernest Wong

So investors now, I think there’s a higher chance that there’s going to be a rate hike in October, which is not great if you have a lot of debt, like if you if you own a mortgage. But no, I think these things generally don’t matter too much in the grand scheme of things. Like if you own good companies, which we do, then you just write it off as a near-term headwind.

Barry Schwartz

And I think that’s really the main point. And it’s really the point that we talked about, although we didn’t have a podcast during Covid, it’s what we talked about here in the office. We talked about during tough times where there’s temporary issues. Does one year of something really make a difference if the company has wonderful growth, great management, compounding power reinvestment opportunities?  One thing’s for certain, interest rates today will be completely different a year from now, two years from now. So inflation, but good management, good reinvestment opportunities. They can only get better if you have the right business or owning the right business.

Ernest Wong

It does. Can I make a side note? You can say whatever you like. It does feel as though supermarkets in Canada, which have been spectacular investments over the last decade or so, it does feel like they are going to be facing some headwinds going forward. As we saw with the Metro strikes, there’s certainly labor pressure. These are fundamentally low margin businesses because, you know, supermarkets is about pennies. Yes, and there is political pressure on food prices, which I don’t know how. I personally think it’s ridiculous if they try to solve high food prices by taxing supermarkets even more.

Barry Schwartz

Or even exacting price controls, something that Pierre Trudeau did in 1975. If you research your history, the 1975 Anti Inflation Act of Canada, where there was price controls, although inflation was stubbornly high for two years in a row. So I get why they took that significant political action.

Ernest Wong

So regardless of your views on these potential actions, not great for the top line or bottom line of the supermarkets going forward. And we don’t own any here at Baskin.

Barry Schwartz

Well, what about even restaurants? Ernest going out to eat is so expensive now, I guess one could make the argument that maybe the supermarkets at least would benefit from fewer people going out to eat, as we know. I mean, I went out with my wife for an I would call it an average Italian dinner and, you know, one glass of wine each and it ended up being a lot of money for average food. So, you know, even those that, you know, can afford to go out to eat are not seeing the benefits. The cost benefit so anyway, that’s the world we’re in right now. Not much you and I can do about it, especially on a podcast.

Ernest Wong

No, definitely not.

Barry Schwartz

Okay. So our next discussion topic is…

Ernest Wong

We’ve received a few questions about the Constellation rights issue.

Barry Schwartz

Yes. So many of our clients own shares of Constellation Software and Constellation software has issued a rights to allow its shareholders to buy debentures bonds, not more stock, but bonds, correct?

Ernest Wong

That’s right. So this part it’s a little bit technical, but in essence, if you own one share of constellation, you will receive or you already received one right which allows you to buy it’s debentures. Constellation debentures are very unique instruments, they’re not like most bonds, which, you know, they mature in five years and pay you a standard interest rate. These are very long term instruments where you earn interest, you earn interest at a rate of inflation plus 6.5%.

Barry Schwartz

The change in inflation.

Ernest Wong

Yes.

Barry Schwartz

Not inflation plus.

Ernest Wong

Exactly.

Barry Schwartz

Which can also add to the confusion because you could have high inflation, but if it’s lower than the previous year, you would receive a reduction in your interest payment.

Ernest Wong

So yes. So currently the that equates to about, I think, 13.3%.

Barry Schwartz

Yes. Well, that’s because inflation rocketed higher in 22 over 21. And this and that’s how the price is adjusted. But you only get that for one year, correct?

Ernest Wong

Yes. It resets annually at the end of March. So back to the rights. You can, if you want to own these debentures, then you can exchange three of them roughly for one debenture, three rights for one debenture for $100 worth of debentures. And the reason that Constellation does this is there’s two reasons. Number one is that it’s a lot cheaper for Constellation because they don’t have to hire an investment bank. They don’t have to go out and market these debentures to investors. And Mark Leonard had actually noted before that that the CEO had noted that the rights issue is actually tax deductible for Constellation. So very efficient way of issuing new bonds.

And number two is that these are fairly attractive instruments that people want to own because of the attractive interest rate and because of the fact that Constellation is a very safe company that you would want to lend to. So they wanted to let shareholders have first dibs on lending to lending to Constellation.

Barry Schwartz

So someone reached out to me, Ernest about the debentures. First of all, the question is why is the interest rate so high? And second of all, why is Constellation doing this? Why is it issuing debt?

Ernest Wong

So the answer, number one, why the interest rate is so high? Because it’s a specialized product adjusted for CPI. And going forward, you’re probably not going to get, unless CPI explodes higher from here and the change year over year is up, you’re probably not going to get much more than 6.5% a year on those debentures. And of course, if you were to buy short term bonds today of good quality companies, you’re getting around 6% on Canadian short term corporate bonds. So it’s not like Constellation is giving you such a high yield.

And I think the second reason why they’re doing it is what you talked about before, about the attractiveness of the deals and the reinvestment rates that can generate versus issuing tax deductible debt at 6 or 8%.

Barry Schwartz

So you want to just quickly explain that.

Ernest Wong

Yes. So Constellation software more than any other company, Mark Leonard is a maniac in terms of maintaining flexibility with the business, so he set out to create a debt instrument that allows maximum flexibility. He didn’t want any restrictions placed on the debt that they were issuing, so no assets pledged to it, no covenants requiring Constellation to maintain minimum ratios or anything like that. And in fact, Constellation is actually allowed to stop paying interest if they wanted to on these on these debentures, which never happened, obviously.

Barry Schwartz

But that would that would be the panic button scenario. But they are allowed to do that. Which is which is which never happens on a bond.

Ernest Wong

No. So they created this very strange debenture which is not really, which does pay interest, but is almost in essence not really like a like a bond.

Barry Schwartz

Yeah. It’s a if you had to classify it in finance, it would be more of a hybrid instrument.

Ernest Wong

Yeah. And so these things are out there and if you, and to cut to the chase, if you want to own more of these debentures, then you should go and buy some rights because it’s hard to buy them in the public market.

Barry Schwartz

And Ernest, clearly Constellation is issuing these debentures and paying a pretty decent interest rate because it thinks it can earn significant amounts of return on the cash that it receives from issuing debt instruments versus investing it in buying other companies.

Ernest Wong

Yes, exactly.

Barry Schwartz

Yeah. So that explains the rights, what to do with them, of course, if you got them, well, you’ll have to decide if you want to own more debentures, maybe you would sell them. If you don’t want to buy debentures and maybe buy more shares of Constellation software. Yeah, cash.

Ernest Wong

And if you don’t do anything with them, they’ll expire worthless.

Barry Schwartz

So they’re trading near worthless anyways. So they’re really for, you know, it creates a problem because if you’re an all equity investor and you’ve gotten these rights for the debentures and you don’t want to exchange them for debentures and go through the hassle and as you said, they’re not very liquid, you know, probably just let them expire. And given where they’re trading at, at the price 2 or 3 cents today, the cost of selling them in your portfolio is going to be more than the commission you pay, or so it’s not or less than the commission you pay. So not a very attractive rate of return from that standpoint.

Ernest Wong

No.

Barry Schwartz

Okay, cool. Next.

Ernest Wong

So we’ve had two companies that reported earnings this week. They were Adobe and Copart.

Barry Schwartz

Yeah. Copart, by the way, caused a lot of problems for our clients because it split its stock and took a few days for those shares to appear in client accounts or portfolios, stock splits. Why did Copart split its stock? That’s a side note, by the way, but I’m not really sure. My guess is that sometimes companies like doing stock splits because it makes their shares more accessible for smaller investors. Maybe they felt that was the case. I don’t think it matters too much either way. But both of both Adobe and Copart have been some of our best performers this year. And I think it is interesting because the narrative on both of these companies has changed quite substantially over the last year.  So Adobe I think most people know Adobe as the company that makes Photoshop and Illustrator and other tools to help creative professionals edit photos, make movies and those kind of things.

Anything to do with media, anything creating advertisements, flyers, graphic design, you name it. All media professionals have for years have been trained on Adobe and its products.

Ernest Wong

Yes, Adobe. We started buying Adobe Stock about a year ago at a time when the stock was down about 50%. Everybody was worried that people who are learning Photoshop and doing photo editing during Covid were going to stop doing that once things resumed.

Barry Schwartz

Yeah, there’s also a narrative out there that there was some free competitors or competitors that offered a suite of products that were going to start stealing market share away from Adobe.

Ernest Wong

Yes. So what ultimately happened since then is that those users didn’t cancel their subscriptions. Adobe actually continued to grow. People, it turned out, wanted to continue to learn how to edit photos and manage and become creative professionals. So that’s number one. And number two is that Adobe has also made a big push into generative AI, which most people think of ChatGPT as generative AI, but Adobe’s product is called Firefly, which is pretty cool. So you can play around with it if you have time. Like you can input, like let’s say I put a photo of myself into Firefly and say, make me bald, right? Then it would make me bald.

Barry Schwartz

Thanks a lot Ernest, thank you.

Ernest Wong

That’s what Firefly would do. It’s extremely impressive and most importantly is that because, after Adobe launched Firefly, more people who were historically not creative professionals started to try Adobe software. So it has really accelerated their growth quite substantially.

Barry Schwartz

And doesn’t Firefly, unlike maybe some other competitors it allows, because of Adobe’s relationship, it allows uses of real licenses, right?  Instead of creating, I don’t know, Ernest dressed as Spider-Man, you actually get to use the real Spider-Man logo or is that right?

Ernest Wong

Yes, that’s a that’s the big debate going on right now around generative AI. Should an AI tool be allowed to copy an art from an artist?

Barry Schwartz

Right. And use their design.

Ernest Wong

Yeah. And Adobe’s bet is that they want to create something that is safe to use from a commercial perspective so you don’t get sued. So you can’t put Mickey Mouse ears on me, for example, because that is a clear violation of Disney’s IP. We’ll see what happens. But even if even if even without that, the metrics have been spectacular for Firefly so far.

Barry Schwartz

Yeah. So the narrative against Adobe was the growth was going too slow and there’s risks with competing models.  You know, over time, I mean, its growth is clearly slowing, but still growing at quite attractive rates. And you saw it in the quarterly earnings, correct?

Ernest Wong

Exactly. So the valuation today for Adobe is clearly not as attractive as it was last year when we bought it, but still a fantastic company that we think is going to continue to do pretty well over time.

Barry Schwartz

Yeah, I mean, the calculus on Adobe is it still looks like it can grow top line by low double digits and grow bottom line by mid double digits because of share buybacks is and as well, it’s one of the world’s greatest business models we’ve ever seen. I think the gross margins on the Adobe Creative Cloud subscription is close to 90%. So that’s pretty good. It’s excellent. It’s amazing. So you had an opportunity obviously earlier this year or end of last year. First of all, there was a sell off in tech stocks. There was worries about Adobe’s still trying to acquire and get approval for Figma, which was one of the competitors people worried about. But in the meantime, that narrative has changed. As you mentioned, Adobe’s focus towards generative AI as well as the business continuing to do well and we’ll see what happens from here.

So for Copart, we’ve talked about Copart quite a few times on this podcast before. They operate auctions for insurance companies to sell junky cars to emerging markets. So last year the market was worried that Copart would be impacted from falling used car prices from falling.

So used car prices spiked in 2021 because of Covid lack of supply. And remember, there was lack of chips for the cars. Prices went up. Everybody thought public transit was trouble so everybody went out and bought cars or bought new used cars. And there was people were waiting like years for cars and impossible to find a used car.

Ernest Wong

Yes. So the way Copart works is that, let’s say you sell a $10,000 car, they’ll take maybe a few percent of that as a fee for they charge a percentage based on the price of the car.

Barry Schwartz

In essence so the worry is that as used car pricing fell, then their fees would fall. Make sense?

Ernest Wong

What actually happened is that as used car pricing fell, and it’s still actually quite elevated today, but as used car pricing fell repair costs stayed high. So the total loss rate, which is the amount of cars that get sent to declare total loss from accidents, the total loss rate has gone up substantially. And when the total loss rate went up, more marginal cases started getting totaled. So cars that like could have been repaired, but the insurance companies still said, hey, let’s just total it anyways. So this ended up providing a boost to total loss rate of sorry to the average selling price. And so Copart has benefited on two sides. Number one, average selling prices have remained high. And number two, more cars have been flowing through their auctions because of the increased total loss rate.

Barry Schwartz

So it’s not necessarily that people are getting into more accidents, God forbid, but it’s that the insurance companies are hesitant to get them fixed given the rising costs. That’s pretty interesting.

Ernest Wong

And so, I think that’s probably the biggest driver of Copart stock. Year to date, and again, valuation is not as attractive as it was last year, but it’s still a fantastic company that we’d love to own for the long term.

Barry Schwartz

Well, we always talk about here that great businesses rarely get cheap. When they do get cheap, chances are the entire market gets cheap ala. 2022. And then, of course, what, do you sell to buy if you already owned a bunch of great businesses? Do you sell to buy another great business on sale? And of course, if you’re sitting in cash, well, you got to time it properly. And of course, sitting in cash can be dangerous over the long term if the market goes up. So it ain’t easy. And of course, the final we always joke about, let’s say Costco or Adobe or Copart fall to, you know, absurdly low valuation, ten times earnings or 12 times earnings, something, you know, reserved for a really crappy company. Chances are at that point, it is a crappy company and it’s no longer a compounder that you want to own. Right?

Ernest Wong

Yes. So the trick, of course, is recognizing when,  if there is a company that is valued as a compounder but actually isn’t, and those are the companies to avoid.

Barry Schwartz

I mean, you and I keep a watch list of wonderful companies today and we’re watching for price movements. Maybe one day we’re going to research them. But just because it falls 40% doesn’t mean it becomes more wonderful. It may become worse.

Ernest Wong

Right. So one example would be Dollar General.

Barry Schwartz

Yeah. Oh, that’s a good that’s one in the news right now.

Ernest Wong

Yeah. For a long time Dollar General was viewed as a great company.

Barry Schwartz

And quick background on Dollar General for those who don’t know it.

Ernest Wong

So Dollar General is a large dollar store chain in the US. They operate mostly in rural areas. And they are I think a lot of they sell a lot of essential goods for people in rural areas who otherwise don’t have access to a supermarkets or Walmart or those kinds of stores.

Barry Schwartz

A lot of Canadians are familiar, of course, with Dollarama, which is, we wish we owned that stock, but a completely different business. They both sell dollar items, but different markets, of course.

Ernest Wong

And for a long time the market gave Dollar General a pretty high multiple. Okay, because it was viewed as a great business with a long runway of growth opportunity.  This year, it’s one of the worst performers on the S&P 500.

Barry Schwartz

That sucks.

Ernest Wong

There’s a few things going on negatively for Dollar General. Number one is that they are losing market share. They’re pricing, incredibly as it sounds, was too high for a dollar store.

Barry Schwartz

Versus other dollar stores versus Target, Walmart.

Ernest Wong

Yes. Versus Walmart.

Barry Schwartz

Okay. And people were simply shopping there less.

Ernest Wong

Yeah. Number two is that they have a pretty bad balance sheet. And so, not only are they faced with declining financial results, they don’t have the balance sheet necessarily to continue to invest to the pace that they probably would have. And so this is not like an investment thesis on Dollar General, but it’s an illustrative example as to what could happen when the market loses confidence in the growth thesis of a company.

Barry Schwartz

Especially a company that strained its balance sheet by buying back stock at high prices only to find itself now, in you know, it’s not in financial trouble, it just doesn’t have the flexibility and needs to figure a way out to reinvigorate revenue growth. Maybe that will come. But the balance sheets is not in a great situation.

Ernest Wong

Exactly.

Barry Schwartz

Okay. Kind of like a Disney. And we’ll leave a discussion for Disney for another day. Thank God we don’t own that stock anymore. So recently, Ernest, we had the Brookfield and Brookfield Asset Management, as well as other subs, investor Day is an annual affair in New York. Bruce and his team discuss the outlook for the year for its companies and go through what’s working, what’s not working. Clients of Baskin Wealth Management have owned shares of Brookfield, we’re not going to get into the original name or whatever, but we’ve owned the parent company in some form or fashion for probably 20 years or so, and now it’s become a little bit of a confusing situation. But luckily we have Ernest to explain what’s going on with Brookfield.

Ernest Wong

This was the first Investor Day of Brookfield, the Brookfield entities since the separation of the asset management business from the corporation. And so the managements of both spent a bit of time just explaining the core model of their business.  I didn’t think the asset management Investor Day was super interesting, to be honest. Brookfield isn’t Brookfield Asset Management. They’re an asset manager, so their job is to be optimistic about the future and the especially of the products that they’re selling.

Barry Schwartz

Yeah, just to remind our clients and investors, if you had Brookfield prior to the split, today you would have 75% of your money,. if you didn’t do anything, you’d have 75% of your money, roughly, in the parent and 25% in Brookfield Asset Management. So for our clients, most of our clients still retain shares in Brookfield Asset Management, much smaller portion of their portfolio than the parent .

Ernest Wong

So the main question facing the asset management business is whether alternatives things like real estate, utilities, private equity, whether these are still as attractive in a higher interest rate environment versus just buying GICs money market bonds. I thought Brookfield kind of sidestepped this looming question. But they did give a hint that unlike a lot of other asset managers, Brookfield manages capital from a very, very diverse range of capital sources. So they have their institutional management business. So managing funds for pensions and those kinds of managers. But they also they also have a growing wealth business. They also have  perpetual capital, which is from Brookfield public funds like the BIPs and BEPs. Yeah they also even manage Brookfield’s own money. Brookfield Corporation whether it be the insurance business that they have or the floating insurance business. Yes. Or the real estate assets that are owned by Brookfield. And so, they’re a little bit less sensitive to the swings in interest rates from a fundraising perspective.

Barry Schwartz

Well, I think anybody, any institution, any endowment, any pension that is making that allocation to alternatives or to have Brookfield manage its money, it’s not looking for 5 or 6% from GICs or bonds or money market. It is looking it’s allocating that portion of capital to achieve 8 to 12%, probably on the higher side, 10 to 12%. So I don’t care what fixed income does. You know, Brookfield should just say that’s maybe at the marginal  a regular person maybe would invest in stocks because they’re worried about the volatility and they’d rather get 5 or 6%. But if they can still earn 10 or 12%, what has changed?

Ernest Wong

Yes. And that was another point that they made, is that because interest rates have gone up, the spreads or the returns that they expect to earn are also higher. So it should be. So there is no change, at least from their perspective, on fundraising activity.

Barry Schwartz

Yeah, well, don’t ask a barber for the haircut.

Ernest Wong

So that was, that was the asset management business.

Barry Schwartz

I thought one of the things, before we move on that Brookfield Asset Management said, which was interesting, is  it’s viewed as an entity with a clean balance sheet and mostly targeted towards those looking for dividends. But it said given this environment, it may be a little bit more active, even making acquisitions on its own, kind of acting like the parent company and maybe even putting its own money into some of its funds. So that’s, I mean, you can say one thing a year ago, but if the environment changes, you’re really handing your money over to the to the allocator to make the proper decision for your money. I don’t know if some investors are taken aback by that, but your take on that?

Ernest Wong

Well, I think that makes sense. Certainly something that Brookfield has done historically and so we’ll see what happens.

Barry Schwartz

Yeah, I mean, I’m all for a company if it can get a double digit return on my money versus giving me out a 4% dividend. I’d prefer it to reinvest. Always reinvestment of the cash flows.

Ernest Wong

One area that they are especially excited about in the next couple of years is private credit.

Barry Schwartz

So they expect their very strong growth from their private credit fund business.  So private credit to explain to those that may have never heard those two words go together.

Ernest Wong

Private credit is basically a fixed income that is not like traditional bonds or from a bank. So think about when a private equity firm wants to do a deal, they will go out and try and find buyers for its debt. And so that’s  what private credit is.

Barry Schwartz

So you’re probably lending money at a much higher interest rates. But if you do your due diligence, it could be a better return on your money.

Ernest Wong

And Brookfield owns a company called Oak Tree Capital, which they purchased in 2019, which is one of the leaders in private and distressed credit. And so in the current interest rate environment, especially what’s going on with the distress in commercial real estate and private equity potentially, I think they expect to have a lot of investment opportunities.

Barry Schwartz

Okay. So let’s move on to the parent Corp, Brookfield.

Ernest Wong

This one was more interesting because it does feel like there’s a general misunderstanding about what Brookfield Corporation is.  In Brookfield Corporation today they own a bunch of stuff. They own a stake in the asset management company, which is their largest asset, but they also own an insurance business. They also own a large portfolio of real estate. They own stakes in various Brookfield funds.

Barry Schwartz

They’ve also made private investments and investments in publicly traded companies. Some of those, we don’t know what they’ve made.

Ernest Wong

Yes, exactly. And there’s a bit of a debate around exactly just how much this stuff is worth in there.

Barry Schwartz

Also, Brookfield says that there’s some gigantic management fees coming their way because they’ve had strong performance on funds. And as those funds mature, those performance fees start to come due.

Ernest Wong

Yeah. So I thought the management did a really good job of highlighting some of the areas that it thought were a little bit less appreciated. So like the one that you mentioned carried interest, they expect to generate $20 billion worth of performance of net carried interest.

Barry Schwartz

Net carried interest, which is essentially performance fees that is owed to it based on the returns that it delivered in funds that it manages for others.

Ernest Wong

And this $20 billion is just on funds that has already been raised.

Barry Schwartz

And this is near certainty on that $20 billion.

Ernest Wong

Exactly. And keep in mind that Brookfield’s entire market value is about 60 billion today. So it’s not nothing. No, it’s a lot of money and it’s all it’s high margin capital as well.

Barry Schwartz

It’s free money baby.

Ernest Wong

Yeah. So that’s number one again they spent a bit of time trying to explain that their real estate portfolio is not like the headlines that you see.

Barry Schwartz

No, it’s not all office buildings where no one’s in them. Crappy shopping malls, you know, all the worst real estate. There’s some really good stuff in there.

Ernest Wong

There’s some really good stuff in there. But there’s also a bit of really bad stuff in there.

Barry Schwartz

Whenever anybody gives a presentation, they’re always going to accentuate the positives.

Ernest Wong

I think that the most important point is that this is non-recourse debt that they have on these properties. So even to the extent that the performance goes very poorly,  it’s not that material overall to Brookfield’s overall valuation. Obviously, they don’t want the property to go under, but even if it did, they can just hand the building back to the lender.

Barry Schwartz

Even if they hand it back the keys to every single crappy real estate on its balance sheet and only kept the good stuff, it would still be in a very good situation.

Ernest Wong

Yes, exactly.

Barry Schwartz

So I think that portion of the business will just have to prove itself out over time.  The last portion is the insurance business, and this is newish for Brookfield and its investors. Investing in real estate and insurance.

Ernest Wong

Yes. And in this business, basically, they are selling annuities and life insurance and using the money to invest in Brookfield products. So things, especially the private credit business that we mentioned earlier, they earn about 20% returns. So fairly attractive and it’s growing pretty quickly as well. So you put all these things together, I think it’s hard not to see how Brookfield Corp stock is undervalued.

Barry Schwartz

It’s undervalued six ways to Sunday. But that doesn’t mean that the stock price is going to narrow that gap. But like you said, they need to continue to deliver good results. And, you know, past performance, of course, past performance doesn’t guarantee future. We trust the management has their eye on the ball. And we think aside from the assets that they’re in, there’s still growth to be one of the things is mis appreciated by Brookfield or the market is Brookfield is a growth company. There’s still more growth to be had. There’s more fundraising that’s happening. Even if you broke up and gave back all the assets today, that doesn’t tell you anything about the future potential of Brookfield and all the areas that they’re getting into in terms of asset management, in terms of investing in real stuff. So, we’re still pretty excited to hold Brookfield and Brookfield Asset Management for our clients. So that’s all we have for today. We’ll see you back here real soon.

This podcast is for informational purposes only, and any forecasts on the economy, markets or individual securities should not be viewed as investment advice, a recommendation or an offer or solicitation to buy or sell any securities. Clients of Baskin Wealth Management and the speakers on this podcast may own. Shares of the company’s discussed information on this podcast is current as of the time of production and is subject to change. If you have any questions or would like to subscribe to these podcasts, visit our website at Baskin Wealth.