In this episode of Profiles in Credit, Geoff Castle, Portfolio Manager of Pender Corporate Bond Fund, reconnects with Dave Thomas, Principal and Co-Head of Training at The Marquee Group, one of Canada’s leading training organizations for financial analysts and investment bankers.
Subtitle: “…don’t underestimate how smart the market is.”
In this episode of Profiles in Credit, Geoff Castle, Portfolio Manager of Pender Corporate Bond Fund, reconnects with Dave Thomas, Principal and Co-Head of Training at The Marquee Group, one of Canada’s leading training organizations for financial analysts and investment bankers. Former classmates at Ivey Business School, Geoff and Dave discuss the art and science of financial modelling, why modelling is the most important shortcut to finding value, and where a financial model might find value today.
Key Takeaways
| [5:00] | From getting kicked out of university to managing a hardware store and cutting glass to getting a job as a messenger at Nesbitt Thomson brokerage house in 1985¬—Dave shares how he landed on Bay Street during the booming bull market and taught himself how to use Lotus on weekends. |
| [7:00] | Dave describes being a messenger for 10 months and then he moved to micro-filming physical T-Bills on settlement of money market trading. On Bank of Canada auction days, he carried $100 million of bearer bonds back to the office for photographing. “Honestly, I was worth more in that moment of my career than I’ll ever be for the rest of my life,” he says. |
| [9:50] | “Excel came in and destroyed Lotus, but did I ever buy a single share of Microsoft ever? No.” |
| [10:15] | Geoff and Dave discuss the tension between the “wonky analysts” who create the models and the bankers who pull the trigger on deals and how modeling is a shortcut to value. |
| [12:50] | Dave explains that modeling is also overlaid with a sense of judgement and good models facilitate it because good models capture all sorts of inputs properly. They tell a story that gets you to value. |
| [14:00] | Geoff asks Dave to recall his time in banking when a model changed the narrative. Dave talks about the tech bubble in ’99 and 2000 when investors overlooked “boring” companies that generated cash flow and were incredibly cheap. |
| [16:40] | Dave discusses mistakes in modelling giving the example of Solar City when it was being acquired by Tesla. |
| [20:10] | Dave talks about The Marquee Group and teaching how to build models in Excel, using data science, Python and VBA, and other tools including evaluation and LBO modeling, and other specifics people would encounter in their banking jobs. |
| [22:50] | Dave discusses the role of the model in finance and why it is so important. |
| [28:30] | Dave explains the top tenets a budding credit analyst should think about when putting together a model of a company from a credit point of view. |
| [33:55] | Dave shares his top 10 errors in modeling. Right at the top? Using Excel improperly. EBITDA cushions, anyone? |
| [37:40] | The role of the revolver—cash when you need it—and the importance of not capping it. |
| [40:00] | Dave talks about where there may be overlooked value in the oil and gas market today. |
| [42:50] | The podcast ends with a book recommendation from Dave |
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