KeyStone’s Stock Talk Show, Episode 243. 

We are back this week with a busy show. I am going to kick off the festivities with a snippet of a recent presentation I gave on a couple of structural mistakes we see far too often in the portfolio building process. Aaron will answer a viewer question on profitable Canadian micro-cap, Gatekeeper Systems Inc. (GSI:TSX-V) – a video and data solutions provider for public transportation and smart cities. The company reported a very strong Q1 FY 2024, Aaron looks to see if the growth momentum can continue. Brennan will circle back on Kevin O’Leary backed, WonderFi Technologies Inc. (WNDR:TSX), which dubs itself as a leading provider of information services for the digital asset industry. The stock, which is down 89% from it highs, has bounced lately on renewed crypto enthusiasm and a promise to become cash flow positive near-term. It is enough to make this serial share issuer interesting, or should this dog be taken out behind the barn and shot – Brennan let’s you know.  Finally, Brett revisits 23andMe Holding Co. (ME:NASDAQ) a human genetics and biopharmaceutical company, which continues to see its share price lose ground. Is it finally a buy? Brett will give you his thoughts.

Let’s get to the show – we welcome my cohost, Mr. Aaron Dunn and the killer B’s, Brett and Brennan.

There are times we tackle more nuanced or complex portfolio issues when we speak at events. Recently, I gave a speech where I really wanted to KISS (not you Brennan), I wanted to Keep It Simple Stupid – often I find that when speaking with average investors, analysts or pundits often overcomplicate investing or portfolio building and present information that is just not useful to the average investor – even sophisticated investors. So, I really wanted to look at the basic ideas behind the structure of the average Canadian’s stock portfolio – and show two major mistakes we see everyday.

It starts right at conception and involves poor structure.

Now, I will give you 4-5 stocks that can help your portfolio shortly, but today we start with a simple piece of advice on the basic structure of a winning portfolio…and why conventional wisdom gets it wrong.

Investors often come to KeyStone because they are dissatisfied with their returns and want a better option. I can break down the most dissatisfied investors into 2 broad groups using…

Two Common Strategies (again, this is if you are trying to beat the market )

Most Canadians either employ…

1) Mass Diversification (traditional big bank model).

2) Go it alone. (too much risk). Often unintended.

Let’s quickly focus on group 1 – and why the strategy is not working.

Number 1: Those who have Poorly constructed traditional Big Bank stock portfolios.

these portfolios are typically Composed of 5-20 mutual funds &/or ETFS.

 Each own 100+ stocks – (so they own the market) – all in the name of the magical word diversification.

The problem is, while diversification is useful, its application in modern portfolio building has been executed terribly. Good idea, poor execution: HOLD HERE:

As apposed to this guy…

where it is just bad ideas, and even worse execution.

Bad ideas, and even worse execution.

While he definitely cannot balance the budget, on a positive note he has showed us, he can balance himself… And we so very impressed.

With that example of horrid execution in mind, I refer to this chart on optimal portfolio diversification which displays that by owning 20 reasonably diverse stocks you have already achieved optimal diversification. And yet, by using the Big Bank method – investors often own over 1,000 stocks. This is the poor execution we see on a daily basis and…

This is what we like to call DIWORSIFICATION… (that get funny the more I use it does not not…??)

back to our slide on Traditional Big bank mass diversification…

With this strategy, all you achieve is a Complex fee heavy portfolio that mirrors the market but underperforms due to the high fees. 

Number 2 (the second portfolio we see often in unsatisfied investors) is when you try to “Go it alone.” Often by chasing returns, they end up with too much risk.

These portfolios largely consist of…

Concept stocks, pre-revenue stocks, junior explorations stocks. 

These portfolios, if we can even call them that, are poorly structured with either too little or far too many stocks and are subject to impulse or Panic buying and selling – they often take undue risk in misguided attempts to find blue-sky type investments. Most often, this strategy…

Ends in disaster.

You do not have to take on undue risk to build a portfolio that has a fighting chance to create real wealth.

If you want to build true wealth, chase cash flow, not concepts. 

and in the building, less is more – concentrate on quality over quantity.  

What we advise you to do is…

Take control.

If you want to beat the market, you cannot be the market.

Create your own simple equity portfolio.

USE A STRATEGY WE COINED – Focused Diversification

Build a 15 to 25 stock portfolio, gradually, over a period of 12-24 months.

Reduces risk/exposure to short-term market correction.

Provides flexibility to add positions as new opportunities become available.


Start with 3 to 5 initial positions.

Add 2 to 3 new stocks per quarter as new information/research is released.


WonderFi Technologies (WNDR:TSX)
Price: $0.25
Market Cap: $161 Million.
Company Description:
WonderFi is an Operator of regulated Canadian Crypto Trading Platform and other digital asset businesses including Bitbuy, Coinberry, Coinsquare, CoinSmart, Tetra and SmartPay.

Slide #2
Considering Kevin’s quote of “If its not making money after 36 months you have to take it behind the barn and shoot it… it was put on your journey to teach you what not to do!” Considering we are now 36 months into WonderFi’s launch in January 2021, I thought that we would take a look at the financials to see if Kevin should in-fact take it behind the barn and shoot it.
Slide #3
The most recent audited financial results were for Q3 2023 ended September 30th, 2023, but in January they also provided a Q4 update to the market in regard to their Q4 2023 results ended December 31st, 2023.
But first looking at the balance sheet from Q3 2023, the company maintains a net cash position with $25.1M in cash and essentially no debt.
Slide #4
Looking at the income statement, revenue is up year over year to $9.9M from just $3.3 million last year, but the business still lost $6.9 million in operating losses for the quarter. And on the bottom line, Net loss for the quarter was $10.6 million or $0.02 cents per share.
And look at that there…. Down in the bottom right… you see that? The company has increased its share count from 192 million last year to 622 million shares today…
Slide #5
And here is to show the increase in shares. And essentially the company’s last raise was for $5 million at a price of $0.22 cents (22.8 million shares), but the huge spike that you see there in July 2023 was for 271 million shares issued to Coinquare’s shareholders for the closing of the WonderFi, Coinsquare and CoinSmart business combination.

Slide #6

Looking at the company’s Q4 operational update, the company is guiding toward 29% sequential growth at the midpoint, and for non-adjusted EBITDA and Operating Earnings to be positive in the quarter.

So, does this mean the company has now achieved consistent profitability? NO, not necessarily. Sure, it’s great to see them guide toward operating profit. But I think the business still has a long way to go before it can prove that it will no longer have to dilute going forward.

Slide #7

Well Kevin… your 36 months are up and consistent bottom line profitability and cash flow have yet to have been achieved… I think it might be about time you take up your own advice.

YSOT 23andME Feb 2024


We last covered 23andMe in May of 2023 and we got a few comments on it so I thought I would look into it again to see how the company has progressed.

23andMe symbol ME or Me on the Nasdaq currently trades at $0.72 a share with a market cap of $348 million. Founded in 2006, 23andMe is a consumer genetics and research company. The company has built the world’s largest crowdsourced platform for genetic research. The company became public through a SPAC in 2021, where it has fallen about 92% since and since we last covered it in May of 2023 it has fallen about 65%.


A quick look at the most recent financials fiscal Q3 2024, which ended the calendar year 2023. Revenue came in at $44.7 million down 33% from the prior year, and for the trailing 9 months down 25% at $155.6 million.

Loss from operations $281 million compared to a loss from operations of $97.1 million. This is primarily due to a goodwill impairment of $199 million in the quarter. The impairment relates to writing down the company’s investment in Lemonaid Health a telehealth platform which it acquired for $400 million in late 2021.

Moving down the income statement unsurprisingly, a net loss of $278 million or a loss of $0.58 a share compared to a loss of $94 million and a loss of $0.20 per share in the prior year. Removing the impact of the goodwill impairment it was a slight improvement to a loss of $79 million, as in reality the goodwill impairment should be recognized over time to follow fair value but accounting-wise is only done at a point in time.


However, even if we look at the always more favourable adjusted EBITDA, which removes the impact of goodwill and removes the impact of stock compensation. The company still had a negative adjusted EBITDA of $47.7 million compared to $43.2 million in the prior year, so the metric which normally makes companies look better than they really are actually shows a decrease year-over-year.

Also, over the same period we’ve seen weighted outstanding shares increase 6.0% to 480.8 million diluted shares from 453.4 million. Not the largest increase by any means, especially given the weaker financial state. However, the company does have a significant amount of out-of-the-money stock options, restricted units and potential future issuance for stock plans. If you are hoping for lottery ticket-like gains, outstanding options and stock compensation like this will damper upside potential.


A pro for the company is it still has a strong balance sheet, which is likely why you haven’t seen the cascading dilution like you will in other companies with financial weakness. 23andMe has $242 million in cash with no financial debt but netting the leases results in a net debt and leases position of $164 million, 47% of the market capitalization.

That being said the position is waning as the company is unsurprisingly cash flow negative, with net cash used in operations of $138.5 million over the past 9 months. If you do just a linear extension of the negative cash flow, you’re looking at under a year before a net debt and lease position and about 1.3 years before burning through existing cash.

Of course, the company can issue shares which would dilute equity holders or dip into debt which can make the situation worse or unrecoverable to cover the hole. Most companies will attempt to significantly reduce expenses during this time to extend the existing cash position, which 23andMe has already done to a point.

So, why would someone want to buy 23andMe?

A very recent comment on our last video highlights what bulls are looking at:“It’s a buy at the current price. The upside greatly outweighs the risk. There won’t be a competitor database half as deep as 23andMe for a decade. With AI advancements and their massive database, throw the financial out the window, buy and hold.”

The bull case for the stock is it has a trove of genetic data which pharmaceutical companies should be clambering over. Well, the reality is that doesn’t appear to be happening at least at the value needed. The company does have an unexclusive contract to license its data to GSK, a megacap Britain-based multinational pharma company for $20 million a year. GSK gets the genetic and phenotypic data which 23andMe collects in the agreement and has for now 6 years. Before this year’s agreement the licensing was exclusive, and not longer is so if you do believe that the data has enough value you need to see additional contracts outside of GSK come online in the near future.

Additionally, the company has various phase 1 and 2a treatments in development which may provide some sort of value in the future but that is still multiple years off an actual market if they even make it that far.


To wrap this up, a couple of points I’ll highlight

Referring to that previous comment, you can’t outright ignore financials when looking at the risk-reward of a company, as the financials pose a risk to 23andMe. The declining cash balance, as well as revenue, puts a timeline on the company before the need to raise capital. Remember you as an equity investor hold a piece of the pie and every dilution makes your piece smaller for the underlying asset or operation you want, in this case, the genetic data.

The other option which some may hope for is some sort of a buyout, but that is a hope and if it were to occur it might be a year down the line and even with a premium to the price may be below your average cost.

The risk still outweighs the reward the factor that I would look to that would move that dial is additional licensing agreements if they do occur the scales change but for now I wouldn’t put 23andMe in my portfolio.


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