Edna: Welcome back to another exhilarating session of the CYS interview series. I'm Edna Nortey, one of the editors here at CYIS for the Investment Journal. Today's interview is one I'm particularly excited for. Today we have Richard Coffin with us, the financial maestro behind The Plain Bagel. He's Canada's own educational YouTuber and a portfolio manager. On his YouTube channel, The Plain Bagel, he posts interesting and palatable personal finance education videos. And as a self-proclaimed finance nerd, he hopes to provide resources and knowledge needed to help people make educated financial decisions. Join us today as we speak to the mind behind The Plain Bagel and learn more about his passion for finance, investments, and how we as you can improve our financial literacy skills. Thank you so much for joining us today, Richard.
Richard: Thank you for having me, Edna, and thank you for the very generous and great introduction.
Edna: So we're going to start off with our first question.
Richard: Sure.
Edna: Thinking back to your days in high school, did you always know you wanted to get into finance or was this something that you discovered later on?
Richard: I would say I discovered most of it later on. I think towards the end of high school where I would have been a little bit involved, I was student council president in high school. That was kind of the most of what I did, but recycling club and small things here and there. And I think as I was getting towards university, my father suggested finance or just business in general as an area to go into because I sort of fit the certain soft skills that come with it. Communication, working in different extracurricular, like that sort of ambition, I guess, of trying different things. And business sort of generally aligns with people who have those similar, I guess, skills. So, and he recommended finance specifically because he suggested the idea that it's easier to go from a number-heavy concentration in business to then switch into something like marketing versus vice versa. It's a bit harder when you've already built a base in marketing and then try to switch into finance. You don't have as much of the technical background. So in high school, I didn't know per se that I want to be in finance, but then when I started studying it, that's when I really developed the appreciation for it. So I kind of lucked out because it was really guidance from my father that led to me to pursue that area. And it was sort of after I started studying it that I really developed the interest in it.
Edna: Wow, that is very interesting. I know a lot of our listeners here have a variety of different interests down in high school and want to pursue something in finance. So knowing your journey and how you discovered it is very, very interesting. Our next question for you is, you've worked as an investment analyst before. So what are some of the key reasons you believe that you stood out as an applicant?
Richard: So I am fully clear in sharing that I had a bit of luck with getting my first position because it can be a tough area to break into. My first job was more operational where it didn't require investment analysis, but I worked for a finance company. And anywhere you can get your foot in the door is still going to help your career, but it wasn't any sort of analysis. It was a lot of processing documents and things like that. But with that position, I developed very strong operational skills that eventually helped me get my analyst role. So I was very lucky where I had developed a unique set of skills, I guess, when it comes to Excel program building, things like that, that my employer, which is a small company where you're more likely to wear many hats and apply those bizarre skills that you've picked up, they actually saw a lot of benefit in that operational side of things that I brought forward. So they hired me kind of with the acknowledgement that they would have to train quite a lot of my analysis side of things, but that I'd bring a lot to the table operationally. And so that's a bit of a unique situation where because I was very good with Excel and they were a smaller company where that means more than a bigger company that might already have everything figured out, I was able to offer some sort of I guess, compromise for my, at the time, lack of proper analysis experience. I had a sort of self-guided experience with analysis and in university I would have done things, investment analysis related that I brought forward with the resume and things like that. But I didn't have that direct work experience that they might have worked, looked for. So that's why I always highlight to students when it comes to extracurriculars and things like that they do a lot more than just, you know, take up your time. They really help build out your soft skills that an employer might be looking for because they can teach the technical skills, but it's a lot harder to teach someone those more soft skills like ambition and problem solving and things like that. So I always recommend, it worked out great for me, a very unique situation, but definitely something to keep in mind as you look to apply to jobs is to always look for ways that you can develop the soft side of skills as well.
Edna: Thank you for that answer. I really like how you highlighted how extracurriculars do supplement the soft skills that you will need later on in life. And I highly recommend that everybody do extracurriculars. For one, I'm involved with many. So yeah, thank you. Moving forward, our next question is, is there one vertical or industry that you personally find particularly interesting to analyze and why?
Richard: So I've been very fortunate where I'm what's called a generalist, which means that I've actually been able to research companies in a bunch of different areas. The one area that I found interest in, because it's a bit unique at this time, is renewable energy. And I know that that's a very buzzword industry, but what's unique about renewable power is that outside of the business sort of fundamentals that you have to research, there's a lot of government policy that plays a big role in that area. So I find that really interesting where outside of having to figure out whether their growth plan makes sense, because a lot of renewable companies are also very heavily focused on growth. It's not what they currently have, it's what they're going to be building into the future, the capital they're going to be spending in that space moving forward. And with that, you have to consider that the policy implications in addition to that. For example, just as a random example, we have a lot of Canadian companies that build in France and the Netherlands because they have more optimal policies towards the development of renewable energy than some places closer to home. So it's a difficult area to analyze for that reason, but I find that really interesting. I wouldn't say there's an area that I prefer to analyze. I think companies that you understand easily are generally easier to analyze. So consumer discretionary, like retail stores and things like that, generally will be an easier starting point. But I've kind of enjoyed the challenge of researching renewable companies because it adds that another layer of difficulty that I'd like to explore.
Edna: Just to add onto that, what would you look for in particular in an industry when you're trying to find something to analyze?
Richard: So generally speaking, my own approach and the approach of the company I work for, there's top down and bottom up. So top down will be, you look at the industries and decide which industry you wanna invest in and then you find a company. I generally use a more bottom up approach, meaning that I don't really look for the industries first. I'd rather focus on the companies, see if they're profitable and then consider industry factors to see if it's a growing or a shrinking industry. But I would say that obviously the things you have to look for are looking at consumer trends, is the space seeing growth or contracting? That's not to say there's not opportunity in both of those, but clearly you have to be very aware of the industry you operate within is contracting. And then the other thing to consider is competitive motes, things like that. In industry where products and services are a lot more commoditized, for lack of a better word, meaning that there's not much of a difference between company A and company B. That's gonna be a lot harder of an industry to find a good attractive investment in than an industry where there's a bit more uniqueness to each company. And that's why tech is a really popular industry because a lot of those companies can differentiate themselves.
Edna: Thank you for that response. Our next question for you is, it is often said that good investment portfolios diversify risk, but what does this actually mean and how can we apply it to our own investment philosophy?
Richard: So what's funny is it depends on who you ask. There are some companies and analysts who will view risk as volatility, meaning how much price moves around. Whereas a company like my own or some others, more fundamentalists, I guess, don't really care as much about how much price moves around, but care more about fundamental underlying factors. So right from the start, people will disagree about what risk even really is with investments or how to calculate it, I guess. But in terms of diversifying risk and what that means, generally speaking, it's identifying in fundamental terms, what poses a threat to the profitability long-term longevity of the companies you hold. So at the end of the day, a stock removing the veil of the stock market, if you just look at it, the underlying business, it's really quite simple of what are the things that make the company money and risk causing it to go under. So things like changing consumer tastes, things like debt, the amount of debt that a company has. And it's those factors that you can diversify off of. So you wouldn't really, for example, want a portfolio that's full of very heavily indebted companies because that increases the risk that those companies go bankrupt. So there's really no single approach for diversifying risk, but it's about being aware of what the risk factors are and how exposed to those risk factors you are. So if you have a lot of companies with a lot of debt on hand, then a risk factor would be rising interest rates, because all those companies are at the same time going to take a hit if interest rates continue to rise. So it's about what people say when what they mean when they talk about diversification is not putting all your eggs in one basket. And that kind of applies to the factors of the companies. And really, there's a whole different there's a whole slew of factors you can consider. But it's about being aware of what those major risk variables are.
Edna: That is very interesting. I think a lot of people can take note on, again, managing risk and using that for investments. Our next question for you is: Now we have a lot of people who are listening and wanting to learn more about finance. So let's say you were to start over your entire journey and learning about finance. What are some of the first technical skills or tools that you would relearn and why?
Richard: Starting over, I mean, I talked about it a little bit already, but Excel has come a long way in terms of technical skills. It's going to vary based on who you work for, but the idea of using spreadsheet programs, so that could be Google Sheets as the alternative, but because so much of finance is numbers-based, you just, Excel knowledge is just such a necessity because compared to using just a calculator or whatever, the functionality you can do with Excel is just, it greatly increases and makes analyzing stuff a lot easier. So that would probably be one of the first things I learned because from a technical standpoint, it's… I don't know if I'd say it's the easiest to learn, but it makes sense as one of the first building blocks, because once you learn how to make graphs with that, go into areas like there's programming that comes with Excel that you can learn. It's quite extensive what you can do with Excel, and it's a very boring program, I wanna be clear, but there's a lot you can do with it. So it's very important when it comes to analysis to become familiar with Excel. The other thing, in terms of technical skills with analysis, I would say probably, well, there's two others I'll highlight. One on, again, the software or technology side of things would be data terminals, which Bloomberg is kind of the very popular one. But for those unfamiliar what a data terminal is, if you haven't used one before, basically it's just a service that provides you data on all the companies that you need to look up. So rather than having to go seek out the information on say, Yahoo Finance or whatever, you would just use this website or this specific computer that's designed to give you data on a company. And it gives you all the data in a very quick and easy to access fashion. So that if I wanna look at Google and I wanna see the revenue they've made every year for the past 20 years, I can pull that up very quickly, very easily. So that'd be another technical skill. And I don't know if it would be in high school, but certainly if you pursue university for finance, you'd be able to find Bloomberg… you'd likely have access to Bloomberg terminals. And then I'd highly suggest that you get familiar with that stuff. Excuse me. And then the third thing I would highlight is familiarity with financial statements. So the accounting side of it, because even though some research analysis really is qualitative, knowing what the product they have, its competitive advantage, things like that, the financial statements of a company really tells you where the money is, what the actual story is historically with the money this company's made. And it's again, kind of like Excel, it can be a boring field, but there's also a lot of shenanigans and interesting weird things that can happen in the financial statements that if you don't have that technical background on, You can have the wool pulled over your eyes in a number of ways. So companies have actually used financial statements to obscure their results in the past. So it's really important to have a good understanding of financial statements that if you look at a company's revenue and their reported profit, their net income, you recognize, hey, that net income has a lot of assumptions tied into it. And I need to go through and make sure these assumptions all make sense or to see if the company's being too aggressive or even too conservative with the numbers they're giving me. That would be kind of the third technical area I would highlight. There's stuff like modeling and things like that as well. But I think that's almost secondary to these building blocks, because you have to really get to these spots before you can consider things like evaluation models and things like that, which you would learn about in, well, I suppose in high school, if you're doing this club, which is great, but if you were to pursue in university or in a career, that's when you would start building the more technical skills around modeling.
Edna: You mentioned a few key fundamental building blocks, like things like Excel and other things like that. So where are the places that you learned how to, where you gain proficiency in these places and what would you recommend for somebody in high school, for example, to start looking into them?
Richard: Right, that's a tough one because a lot of it I actually picked up from a coworker, funny enough, especially Excel. There was a guy beside me during my first job who was incredible with Excel and he actually taught me quite a bit. But from that point, a lot of it was self-taught. And I think the great thing about YouTube is that there are a lot of great resources on that platform for things like Excel. And I think for me anyway, a lot of my Excel knowledge was needs-based where I didn't necessarily go and, you know, I might've studied some very early introductions to Excel, but in terms of learning the technical stuff, the more advanced stuff, only stuff I would look into as I needed to learn it. So I run into a problem at work about Excel and I need to figure out, well, how do I do this? So I go and Google it and figure it out. So I don't know if I'd have a central resource to share or a course or something like that, but there's a lot of great free resources and free introductions you can find just by Googling Excel walkthrough. So you can look into, if you wanna segment Excel, for example, there's Excel functions, which you can look up what the common functions are, Things like VLOOKUP is a popular one that you would use. You can look up things like pivot tables, which is another function. So if you know what you need to learn more about, you can just look into it. And there's a lot of free resources out there. Bloomberg, the terminal stuff, the nice thing, the reason why I highlight Bloomberg specifically is that if your school has a Bloomberg terminal, they actually have a built-in course where if you go to the terminal and set up an account with them, it will run you through how to use a data terminal on the data terminal. So that's great for that. And then accounting, unfortunately, is a bit more of an advanced one. I would have learned it myself through university. I would say that you can always look into buying secondhand university accounting books, if that's of interest. I wouldn't have a free resource you could use for that that I know of. But I'm sure, again, if you search, if you look online for what you need to learn, you would be able to pick that up. But accounting is… It's so, I mean, it's its own career for a reason. It's a very complicated field. So I think if you're going to learn about accounting, that's probably going to take a bit more of a formal route. Excel, you might be able to pick up yourself and accounting, you can pick up the bits here and there, but it might require a bit more of that formal education.
Edna: Thank you for that. Awfully convenient that you had such a talented coworker at that time.
Richard: It was great. Yeah, very convenient for sure.
Edna: I'm sure we'll all look into that because it seems very, very interesting.
Richard: Yeah, definitely try to get one. Get a smart coworker to sit beside. That's very helpful.
Edna: Yeah, I think we have one more question for you.
Richard: Sure.
Edna: Can you explain some of the key financial indicators you look for when analyzing a company as a good potential investment?
Richard: So there's not a single indicator, even I would say a single set of indicators because it can change based on the industry you look at. Different companies in different industries will have what are called key performance indicators. So as an example, a retail store might have something such as their sales per square foot or something along those lines, which you wouldn't care about if you were looking at a utility company. But outside of those kind of industry specific things, the few things I would ook for is one, some sort of metrics around their leverage. I would want to know how much debt a company has. And there are a number of different ways you can look into that. Some could be, for example, debt to asset ratio. You can do net debt to EBITDA, which is a profit measure. So you see how much debt they have relative to the money they're making. And those sort of ratios give you an idea of how much of this company's operations are supported by debt. And if you were to take this debt away ,how much of an impact would that have on their operations? So that's one side of it. Another side would be how much money they're actually making a profitability. And unfortunately, there's a lot of different profitability metrics you can look at. Most people would know what net income margin is, but the problem is kind of to the point earlier with the counting, there's a lot of assumptions that go into a net income figure. So it's very rarely a direct representation of how much money or cash a company has actually made. So while it's good to know what a company's net income margin is, which is how much money they get to keep for every dollar of sale they have, there's other other profit things you need to look in as well. Cash flows is one, for example. Again, another accounting statement that takes a different view to see, well, let's ignore those assumptions, how much money actually entered the business this year, whether they earned it or not. So that's something to look at as well. And there's something called free cash flow, which I think is important to a lot of models. So you can look up something called free cash flow… margin is kind of a rough term you could use, but how much money the company makes that its investors get to keep after everything is accounted for is basically what free cash flow is. So some sort of some understanding of their leverage, some sort of understanding about the money they make.So you want to see how sales have been growing, how profits have been growing. And I usually look over different time horizons. So what's the average growth rate over one, five, 10 years? And I look at all those numbers. So you can see I'm starting to list off quite a lot. You look at a lot of numbers doing this job, but. And so outside of all that, there's growth, there's how much money they get to keep their profitability, there's leverage, and then valuation is another one. So once you have an idea of how much money a company makes, how quickly they're growing, which are all great things, you also need to see, well, is their stock a good deal? Is it priced fairly or is it overpriced? Is it too expensive relative to how much money it's making? So, and again, with valuations, it changes based on the industry you look at, but P/E is a very popular one, which just is the stock’s price divided by their say, next 12 months of earnings. And that will give you an idea of, people call it like a sort of price point. If the P/E ratio, for example, is 40 times or higher, that's pretty expensive. And that might be justified, but you need to understand, well, why is it so high? And if a P/E is say below 10 times, or in the single digits, then you need to understand, well, why is it so cheap? And is it justified, or is this an opportunity to buy the stock? But there's all types of valuation ratios that tell you how expensive a stock is relative to their underlying value. So unfortunately, there's no simple set of five numbers or whatever, and I'm probably starting to convey that a little bit. It all depends on the companies you look at, but I would say those are kind of the areas you want to look at. Again, growth, profitability, leverage, and then valuation as another consideration there.
Edna: Thank you for that. All of those metrics that you shared and the values, very insightful. And I know we have a lot of listeners that are very interested in investments and things like that. So all of your tips are greatly appreciated. But before we let you go today, we want to give you an opportunity to talk more about your YouTube channel because there are a lot of fans as a part of the CYS Journal. So take it away!
Richard: Yeah, so if you haven't heard of it, but it's The Plain Bagel, it's an investment in finance YouTube channel, a whole slew of different topics. Older videos give a lot more of a basic overview of investing in finance. So the first 10 episodes or videos are very much beginner friendly and focused on, they're very dated in terms of the quality. So I apologize, they were filmed on an iPhone, but they do give the very basic building blocks of investing in finance. And as time has progressed, they've gotten a lot more into news items that have come up, stories you might've heard in the news, kind of dissecting that. But yeah, that's the channel. We have, I think, 850,000 subscribers, so we're growing quite a bit. And yeah, feel free to check it out. Again, the older videos would give a bit more of an outline for those who are starting from square one and want more of a building block, but we post content twice a month, roughly.
Edna: All right. Thank you so much. I learned a lot of things and I'll definitely have to look into your YouTube channel again to supplement the knowledge that you gave us all today. It was splendid talking to you, I learned so many things and thank you for joining us this time for the CYIS Journal.
Richard: My pleasure. Thanks for having me.
Getting Started in Finance with The Plain Bagel