A top-performing US stock for Canadian investors to buy and hold

Canadian investors tend to invest in Canadian markets. It’s a well-known trend, not just among Canadians, but among investors around the world. Home-field bias refers to the tendency of investors to buy the stocks of their home country. To some extent it makes sense. If you live in a country, you usually understand its companies to some extent, which gives you an advantage in that market. However, the concentration risk is very real. The vast “local knowledge did not save a single Japanese investor who bought the Nikkei in 1989 with the intention of holding it long-term. It would have taken almost 30 years to break even!”

The lesson is clear: Home bias is, on the whole, irrational. While you may know more about Canadian stocks than you do about stocks from other countries, what you don’t know about them is that there is a zero percent chance of bankruptcy. So it pays to diversify internationally. That’s why in this article I’ll reveal a top-performing US large-cap stock for Canadian investors to buy and hold.

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 flocking to its annual meetings every year.

Despite Berkshire Hathaway’s widespread brand recognition, not many people actually know what the company does. His claim to fame is his legendary CEO, not his activities. Warren Buffett is best known as a stock picker, and his 13F filings are diligently studied. In the next section, I’ll look at what Warren Buffett actually owns, and why he’s holding it in such large quantities.

What the company does

Berkshire Hathaway is primarily active in insurance. It is growing its underwriting dollars by carefully assessing its policyholders for solvency and attracting new customers to fuel its acquisitions. It’s a winning model that has made Berkshire successful over the years.

Two other things Berkshire Hathaway has to deal with today are its stock portfolio and entire companies. Berkshire Hathaway’s portfolio includes legends such as Apple And Bank of America and has delivered a compound annual growth rate of approximately 15% in recent years. Likewise, Berkshire has an extensive collection of operating companies (Dairy Queen, GEICO, BNSP and more). Simply put, you can find many of America’s best companies in Berkshire Hathaway’s portfolio and hold them overnight, safe in the knowledge that they will be managed by some of the world’s best long-term capital allocators.

Valuation

As a final note, I would like to address Berkshire Hathaway’s valuation.

Despite all the good things happening in the sector, Berkshire’s shares are still fairly cheap: They trade at 22 times operating earnings, 15.8 times GAAP earnings, 2.8 times sales, and 1.5 times book value. There’s quite a bit of value under the hood of Berkshire Hathaway, and it has an excellent management team overseeing everything.

Silly takeaway

Few Americans are as Canadian as Warren Buffett. Intelligent, gentle and polite, he has many qualities that are rare in the business world, yet effective. We, Canadians, can be proud to share this (and his stock picks).