This week's interesting finds

A few charts worth discussing

“Technology can drive job creation.”

- Frank Mullen

“The next U.S. President will face Social Security exhaustion, which is when the social security trust fund becomes fully depleted. The Congressional Budget Office (CBO) now expects this to occur in 2032. With a declining number of workers to support outlays and with U.S. Federal debt increasing above 120% of GDP, it's difficult to imagine an outcome other than forced entitlement reform.”

- TJ de Gruijter

Other charts worth pointing out

Canadian housing market

Housing starts – Canada vs. the U.S.

Canadian mortgage rates and payments

U.S. equity valuations

Capex cycles

S&P 500 Index – constituent cash spending

S&P 500 Index – materials % of market cap

Commodities vs. developed market equities – 10-year returns

A review of stock-based compensation

Michael Burry of 'The Big Short' fame is known for predicting the 2007-2008 housing crisis and financial crash. Now, the former hedge fund manager — who's earned a reputation for spotting potential bubbles — argues in a recent Substack that Wall Street has been overstating tech earnings by 42% over the past decade.

This comes at a time when the AI boom has led to historic highs for tech stocks, which is simultaneously stoking fears of a bursting AI bubble.

Burry's comments aren't off the cuff. He came to this conclusion after analyzing more than 1,000 annual reports from Nasdaq 100 companies going back 10 years.

The math behind the claim

Burry claims that tech companies have improperly accounted for stock-based compensation (SBC) over the past decade. As a result, investors have been paying inflated prices.

Those prices are based on a loose interpretation of Generally Accepted Accounting Principles (GAAP), which are a standard set of rules used in financial reporting to ensure transparency and consistency.

But Burry argues that tech companies are treating SBC as "free" compensation for employees — and not accounting for real costs.

As a result, the Nasdaq 100 earnings of primary tech companies are overstated by nearly 20%, he writes, because SBC costs aren't fully factored in.

He highlights companies like Meta, which he says overstated owner earnings by about 20%. Other companies he points to include Datadog, Workday, Axon, Shopify, Palantir, Marvell, CrowdStrike and Zscaler.

Burry writes that Tesla's use of SBC was so significant, the GAAP overstatement was reduced from about 20% to 12.5% simply by removing Tesla from his analysis.

During the past decade (ending in fiscal 2025), 97 tech companies in the Nasdaq 100 reported $4.9 trillion in cumulative CAAP net income, according to Burry. But Wall Street analysts include SBC in their analysis, bumping that number up to $5.8 trillion. That, says Burry, leaves an "earnings illusion" of $1.7 trillion.

Burry has previously warned that AI hyperscalers are artificially boosting their earnings by understating the depreciation of their assets.

Broader implications for investors

The practice of improperly accounting for SBC "skews valuation metrics, making companies appear more valuable than they truly are," according to American Bankruptcy Institute Journal, per FTI Consulting. "Analysts and investors often accept these adjusted figures without question, leading to inflated market perceptions (4)"

Unless investors push back, then "widespread reliance on adjusted EBITDA as a performance measure will continue distorting financial evaluations and misleading stakeholders."

Many Americans own stocks through 401(k) plans or index funds, which are increasingly concentrated in major tech companies. So they could face significant losses if valuations were to normalize.

Out of 2,013 U.S. stock funds (excluding sector funds) screened in Morningstar Direct, an investment analysis platform, Morningstar found that 119 of those "had 50% or more of their assets in tech, while 298 had a 40% or higher allocation."

And those numbers are understated, since some investors categorize tech stocks under different sectors — such as categorizing Meta and Alphabet under the communications services sector.

That means 401(k)s and index funds that are heavily concentrated in tech stocks are more vulnerable to market volatility — and, potentially, overvalued assets. For retirees and near-retirees, this poses a conundrum.

With the rising cost of living — including rising healthcare costs — retirees and near-retirees want their investments to beat inflation. Yet, there are growing fears of an AI bubble — and now, with Burry's analysis, there's a new concern to add to the mix.

Most financial professionals recommend a diversified approach to manage risk and reduce volatility. That means spreading investments across different asset classes, sectors and geographies for more consistent long-term returns.

Investors need growth and risk protection. And that's shifting the investor mindset, Mike Loukas, CEO of TrueMark Investments, told CNBC's ETF Edge. Nowadays, many retirees are looking for "performance that's good enough" rather than trying to beat the S&P 500.

For anyone worried about whether current tech valuations reflect actual costs, it's worth sitting down with your financial advisor to make sure your investments match your risk profile and long-term goals.

This week’s fun finds

‘Montreal wings’: Pub bans all things Buffalo in support of Canadiens

Faced with a choice between the sweet taste of victory and the spicy taste of a sauced chicken wing, Cunningham’s Pub in Ste-Anne-de-Bellevue has chosen to excise the word “Buffalo” from its menu ahead of the Montreal Canadiens’ second-round matchup with the Sabres.

In a move some Sabres fans may recognize from their country’s “freedom fries” era, the pub says it will now be serving “Montreal wings.”

And yes, before you say anything, Buffalo Sabres fans did sing the Canadian anthem last week after a singer’s microphone malfunction. But those were simpler times, before the Canadiens had made it to the second round of the NHL playoffs.

This week's interesting finds

The benefits of being different - 1st quarter, 2026

Investment Team members Sydney Van Vierzen and Steven Lo talk about their Q1 2026 commentaries with Relationship Manager Alex Gramegna. They cover the ways that the EdgePoint Investment Team is structured to avoid biases, the work they do every day to be ready for volatility and so much more.

A few charts worth discussing

“Brent and the S&P 500 have been moving up since the ceasefire. The probability of both continuing to do this is close to 0%.”

- Tye Bousada

“Sell in May and go away?’ Data says otherwise. May has been the 4th best-performing month over the past decade.”

- Greg Sinclair

“With increasing demand for data centres, AI-infrastructure-related debt as a % of the U.S. high yield index has grown meaningfully since last year.”

- Tracey Chen

Other charts worth pointing out

S&P 500 Index drawdowns since 2010

S&P 500 Index – Top 10 stocks relative returns to the rest of the index (equal-weighted)

S&P 500 Index 52-week market breadth

Momentum continues to rise

Sector performance since the start of Iran War

Information Services vs. S&P 500 Index – valuation multiples

Global equity valuations by region and sector

AI adoption vs. new business creation by sector

Student loan balances by debt size

S&P Weighs New Index Rules to Speed Up Addition of Mega IPOs

S&P Dow Jones Indices LLC has launched a consultation that could eventually speed up the entry of mega cap companies seeking to IPO into its indexes, including the S&P 500.

The rule change would shorten the amount of time a company needs to be public before being eligible to enter its indexes to six months versus the current minimum of 12, according to a statement on Thursday, confirming a previous Bloomberg report. The index provider is also weighing new rules that may waive the requirements on profitability and liquidity for large companies.

If approved, the changes would mean that billionaire Elon Musk’s SpaceX could potentially enter the S&P 500 faster, unlocking a wave of billions of dollars in forced buying. Funds that track the S&P 500 must buy newly added stocks, and roughly $24 trillion is tied to the S&P 500, according to Bloomberg Intelligence.

The proposed changes to the seasoning period would apply to eligibility determination for indexes including the S&P 500, S&P MidCap 400 and S&P SmallCap 600. Inclusion in the indexes would still be determined by a committee.

The consultation period is open until May 28 and any changes would be adopted prior to the market open on June 8, according to the statement. That timeline would take place ahead of SpaceX’s expected initial public offering later in June and prior to potential listings for OpenAI and Anthropic PBC, Bloomberg News has reported.

S&P Dow Jones Indices defines a megacap company as one with a total company-level market capitalization equal to or greater than the 100th largest company in the S&P Total Market Index. That would include companies valued greater than roughly $112 billion as of the end of 2025, the statement shows.

SpaceX could seek to raise as much as $75 billion at a valuation in the IPO of more than $2 trillion, people familiar with the preparations have said.

Nasdaq is enacting a rule change to speed up the inclusion of newly listed, large-cap firms to enter its flagship Nasdaq-100 Index. FTSE Russell, which proposed to shorten an IPO’s waiting period to five trading days, concluded its consultation earlier this month and has yet to make an announcement.

This week’s fun finds

Julie, from the Institutional Team, brought the Toronto Beaches to the EdgePoint office for her Moai this week. It was a nice way for the team to connect over bold flavours and great conversation. Thanks Julie!

Tennis Balls Are Bright Yellow Thanks, in Part, to Sir David Attenborough — Here's Why

Tennis balls are the bright yellow color that they are known for today, thanks in part to Sir David Attenborough.

In an article penned for The Radio Times, the British broadcaster and naturalist, 97, said that, as controller for BBC channel BBC2 in 1968, he was responsible for bringing color television to the U.K. for the first time that year.

This week's interesting finds

First quarter commentaries are now live! 

This quarter, Sydney Van Vierzen talks about behavioural pitfalls of the asset management industry and how the EdgePoint Investment Team is structured to avoid them, while Steven Lo discusses the behind-the-scenes work that the Investment Team does before buying a security and how it helps them act quickly when volatility inevitably occurs.

A few charts worth discussing

“How oil is at $95 -- instead of, say, $295 -- is perhaps the mystery of our time. You can buy WTI oil for December 2026 delivery at $77.40 as of Friday morning. And airlines are cancelling flights?”

- Derek Skomorowski

“Industry change in CT scans – new technology that reduces radiation and increases image clarity – rapid product adoption.”

- Stas Lopata

Other charts worth pointing out

S&P 500 Restaurants Index relative P/E valuation 

U.S. vehicle miles

Estimated raw material cost per vehicle

S&P 500 Index employees

AI-related portfolios vs. S&P 500 Index – returns since December 2023

S&P 500 Index vs. sectors – P/E ratios (next 12 months) 

S&P/TSX Composite Index vs. S&P 500 Index – foreign revenue & valuations

TSX vs. S&P 500: Higher foreign revenue exposure & lower valuations

U.S. vs. Canada – Sector correlation and weights

Tokyo Stock Price Index (TOPIX) – Dividends and buybacks

Major index – % of revenue from a single sector

Base metal prices vs. physical inventories

AI Boom Drives Record Capital to Late-Stage Venture Funds

U.S.-based growth and late-stage venture funds raised $23.6 billion this year so far—a figure that already exceeds the annual totals for any of the past dozen years, according to research firm PitchBook. Such funds invest in startups that are typically raising their Series C or later rounds, according to the data provider’s definition.  

Historically, such funds accounted for just around 10% of assets under management in venture capital globally since 2010, according to Preqin, a division of BlackRock. 

About 36% of limited partner institutional investors surveyed by Preqin in November said they believe late-stage strategies are among the best opportunities within venture capital, up from 28% the previous year. At the same time, interest in early-stage funds fell, according to Preqin.

Late-stage funds have a shorter time horizon to returning capital, a key consideration for many LPs parched for cash, said Angela Lai, vice president at Preqin. Some expect that this year the multiyear logjam on initial public offerings will break, improving the chances that later-stage funds start realizing their investments. Early-stage venture funds, meanwhile, last 16 years, on average, according to Meketa’s historical database.

Andreessen Horowitz is another firm that raised a much larger growth fund in January, collecting $6.75 billion up from $3.75 billion for its prior growth pool. 

Late-stage funds underperformed other venture categories after the frothy conditions in 2021 gave way to a subdued market, with higher interest rates and few IPOs, according to Preqin. Yet late-stage fund returns have been picking up. 

Global investment firm Cambridge Associates advised limited partners to include multistage investing strategies as they invest in venture funds. “Doing that will increase the odds that LPs can capture Power Law winners that slip through the grasp of earlier-stage managers,” the firm wrote in a December note. Power Law refers to the tendency in venture capital of a few investments to generate the vast majority of returns.

Meketa’s Samson cautioned that currently late-stage funds tend to have a lot of overlap in their portfolios. “If you look across all of these funds, they are basically in the same companies, the Andurils, the Anthropics, the OpenAIs,” he said. LPs should pay attention to when fund managers first invested in these hot companies, as that will have a large impact on eventual returns, Samson said. 

Meketa, meanwhile, is continuing to prefer early-stage when it comes to venture allocations, he said.

Preqin’s Lai said early-stage investing will remain the workhorse of venture capital in the long term. “Early stage is where you are going to see the better long-term performance, since you enter into these opportunities at much lower valuations,” she said. For now, however, investors are leaning toward strategies that back businesses that are more proven, she said.

 

This week’s fun finds

A brief history of instant coffee

The convenience of instant coffee masks a surprisingly difficult problem. Coffee’s appeal lies in the hundreds of volatile compounds that create its flavor and aroma, exactly the substances most likely to disappear during processing. Creating instant coffee required developing techniques to extract the soluble molecules in coffee from the insoluble plant matter without destroying the fragile compounds that make coffee worth drinking.

Instant coffee has spent most of its history as the cheapest, quickest, and most portable coffee, but with a reputation for low quality when it comes to the flavors that coffee lovers seek out. That has begun to change: a market for premium instant coffee has opened up over the past two decades. Today, specialty roasters like Verve and Supreme offer freeze-dried versions of their coffees, often selling for around $2.50 per cup, 35 times the price of standard instant.

Making this possible required technical breakthroughs. One issue was aroma loss. While freeze drying helped preserve more volatile compounds during drying, delicate aromatics could still be lost during earlier stages like roasting, grinding, and extraction. Retaining more of these compounds required improved aroma recovery methods that capture volatiles early in the process, store them separately, and add them back after drying. Primitive forms of aroma recovery had existed since the early twentieth century, but advances since the arrival of freeze drying gave manufacturers better tools to preserve the subtle characteristics that distinguish specialty beans.

Technology alone wasn’t enough to create a premium instant market. The economics of production also had to change. Instant coffee production requires multi-million dollar capital investments in extraction batteries, concentration equipment, and drying facilities. Historically, only manufacturers running at massive scale could justify these costs, leaving specialty roasters with no realistic path into the category.

This changed in 2016 when Nate Kaiser founded Swift Cup Coffee in Lancaster, Pennsylvania, pioneering what you might call instant coffee as a service. Today, a vibrant market of contract processors exists to serve specialty roasters. These processors brew roasters’ beans to precise extraction standards, freeze dry in small batches, and package the finished product under the roaster’s own brand. This converts lumpy fixed costs into variable costs, letting roasters test the market without major investment.

While instant may never be the coffee connoisseur’s preferred drink, decades of innovation have earned it a role in millions of people’s lives. From troops in the field to rushed mornings and camping trips, it offers a practical solution when time or equipment are scarce. 

This week's interesting finds

 A few charts worth discussing

“Higher growth names are getting less expensive, with the largest valuation compression concentrated in businesses expected to deliver the strongest sales growth.”

- Tye Bousada

“The tech sector’s weight continues to grow in credit indices, particularly across investment grade, high yield and leveraged loans. Sectors with increasing capex spend often become the largest index weights as they borrow to fund expanding budgets, increasing index exposure to the themes of the day.”

- Steven Lo

Other charts worth pointing out

Asian vs. U.S. equity valuations

U.K. equity ownership by category

Household equity ownership – Europe vs. U.S.

Domestic equity ownership vs. valuations

Hedge funds’ share of U.S. Treasury holdings

AI tool subscriptions by U.S. businesses

S&P 500 Index return decomposition – 2026 YTD

U.S. vehicle market share by segment

U.S. vehicle sales by segment

U.S. vehicle sales vs. gas prices

Global personal luxury goods – market vs. top-spender share

US private credit firm backs loans for World Cup ticket flipping

A boutique private credit firm has its eyes on a lucrative trade ahead of the Fifa World Cup this summer: lending to an online platform that aims to flip tickets of sought-after football matches for large profits.

Eagle Point Credit Management has recently increased its $50mn financing package to Sports Illustrated Tickets — a sister company of the sports magazine — to help fund its plan to purchase World Cup tickets and resell them with huge mark-ups.

The profit potential has convinced Eagle Point to sign off the loan, which amounts to the total cost of the tickets, meaning that if Sports Illustrated buys $1mn worth of World Cup tickets, it would lend a full $1mn.

Investments in ticket resales typically yield returns in the mid-teens for lenders, which include New York-based investment firm Feenix Venture Partners, according to Eagle Point.

If Sports Illustrated Tickets fails to repay the loan, lenders could seize its assets, including millions of tickets to sports, concerts and theatrical performances worldwide.

Fifa, football’s governing body, also makes a profit from the resale of World Cup tickets, getting a 15 per cent cut of the sale from both the buyer and the seller.

For example, a seat behind the goal at the US team’s opening game against Paraguay is currently listed on Fifa’s resale platform at $5,900, plus a fee to the governing body of $885. The ticket has a face value of $2,735.

High ticket prices at the tournament, which is being held across the US, Mexico and Canada, have led to an outcry from fans around the world as well as from politicians in the US.

Meanwhile, US hotels are slashing room rates on game days, as high ticket prices and anti-American sentiment are discouraging football fans from attending the matches.

Sports Illustrated, a 72-year-old magazine most famous for its sports journalism, has in recent years expanded its revenue streams to include TV streaming, ticketing and branded events.

The ticketing business, which is separate to the editorial unit, describes itself as a “fan-first marketplace” and a “trusted source for unforgettable live experiences”. It secures tickets in part from sponsoring events and partnering with stadiums.

In September, it signed a 13-year deal with New York Red Bulls that will rebrand the soccer team’s home court in Harrison, New Jersey as “Sports Illustrated Stadium”. It will also be the official ticketing partner for all future events there, including a series of World Cup watch parties.

Still, the inflated price of World Cup tickets has deterred even well-heeled members of the Wall Street elite from attending the tournament.

This week’s fun finds

Andres, from the Trade Operations Team, hosted a vibrant Colombian-inspired lunch featuring bold flavours, ingredients and traditional favourites. It was a perfect way to end the week and bring warmth and a bit of culture to the office.

Bebe the Parrot Goes Viral for Exploring Bahamas in Custom Built Submarine

A pet parrot named Bebe has gone viral after his owner took him snorkeling in the Bahamas using a homemade submarine. The custom submarine, which owner Steven Lawyer tested at home before using it in the sea, allows Bebe to explore underwater in a way that is unusual for parrots. The bird has also participated in other adventurous activities.