Canadian investors are prone to investing in Canadian markets. It’s a well-known tendency, not just of Canadians, but of investors the world over. Home-field bias refers to the tendency for investors to buy their home country’s equities. To an extent, it makes sense. When you live in a country, you usually understand its companies to some degree, giving you an edge in that market. However, the concentration risk is very real. Immense “local knowledge did not save any Japanese investor buying the Nikkei in 1989 with the intent of holding it long term. He would have taken nearly 30 years to break even!
The lesson is clear: home-field bias is, on the whole, irrational. While you might know more about Canadian stocks than other countries’ stocks, you don’t know so much about them as to have a zero percent probability of failure. So, it pays to diversify internationally. Accordingly, in this article, I will reveal a top-performing U.S. large-cap stock for Canadian investors to buy and hold.
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Berkshire Hathaway
Berkshire Hathaway (NYSE: BRK.B) is a diversified financial conglomerate. Long controlled by Warren Buffett, it is something of a Wall Street legend, with thousands of investors every year flocking to attend its annual meetings.
Despite Berkshire Hathaway’s widespread name recognition, not many people actually know what the company does. Its claim to fame is its legendary CEO, not its operations. Warren Buffett is known mainly as a stock picker, and his 13F filings are pored over diligently. In the next section, I will take a look at what Warren Buffett is actually holding, and why he is holding it in such vast quantities.
What the company does
Berkshire Hathaway operates primarily in insurance. It grows its insurance float by carefully assessing its policyholders for solvency and taking on new clients to boost its acquisitions. It’s a winning model that has seen Berkshire succeed over the years.
Two other things that Berkshire Hathaway has going for it today are its stock portfolio and wholly owned businesses. Berkshire Hathaway’s portfolio consists of legends such as Apple and Bank of America and has returned about 15% compound annual growth rate in recent years. Likewise, Berkshire has a vast collection of operating businesses (Dairy Queen, GEICO, BNSP and more). Put simply, you can find many of America’s best companies inside Berkshire Hathaway’s portfolio and hold them safely at night, knowing that they will be managed by some of the world’s best long-term capital allocators.
Valuation
As a concluding note, I should touch on Berkshire Hathaway’s valuation.
Despite all the good things happening in its business, Berkshire stock is still fairly inexpensive, trading at 22 times operating earnings, 15.8 times GAAP earnings, 2.8 times sales, and 1.5 times book value. There is quite a lot of value under the hood in Berkshire Hathaway, and it has an excellent management team to oversee everything.
Foolish takeaway
There are few Americans more Canadian-like than Warren Buffett. Intelligent, soft spoken and polite, he has many traits that are rare in the world of business, but nevertheless, effective. We, as Canadians, can take pride in sharing them (and his stock picks).
