jeudi 31 octobre 2019

8,5% VS 11,8%

8,5% VS 11,8% is the difference between the annual return of an investment on the TSX\S&P500 composite and the same investment on the S&P500 on a 39 years period (1979-2018).

Click on this link to see the reference:

I don’t understand why some people don’t buy american stocks.

The best stocks are there and the exchange rate has almost an unsignificant impact on the long term. So why not putting all the chances on your side and hunt on the American market?

Of course there’s a few exceptional Canadian stocks, but apart these 8-10 great stocks, in my opinion, you should look south of the border. Try it, it won’t harm you. You’ll feel a little weird at first but you’ll get used to it.

And these supplimentary 3,3% will make an important difference on the long term. A much bigger difference than the exchange rate.

10 commentaires:

  1. Well as a guy who owns nothing but Canadian stocks I guess I should respond this post…

    The stock market is a big multidimensional, multifaceted phenomenon where there are no set rules for investing or participating in it…

    I’ve seen these studies comparing indexes before and to me they are meaningless. I don’t invest in indexes nor do I even look at them. I invest in individual companies while focusing on their management teams (hopefully smart, honest and long term in thinking), their business models and the industry they operate in…

    The Canadian market is really for more of small to mid cap space. There are many opportunities for the individual DIY as long as their willing to ignore the commodity stocks (energy, mining) and are willing to move down in cap size…but that’s me, everybody is different.

    Good Canadian names that I own are (BAM.A, BIP.UN, OTEX, IFC, AIF) and there are others good companies that I would like to own if I had the money (PBL)

    The stock market is a big place and there are many places to invest your money, you just have to find the right approach that suits you…

    1. This post indicates mostly that the american market is generally better than the canadian market.

  2. I only own Canadian stocks as well.

    My reasons:
    1. unfavourable USD/CAD conversion rate
    2. high brokerage fees for currency conversion
    3. unfavourable tax treatment of foreign dividends in TFSA
    4. too small portfolio which I might need to liquidate in the next 5-10 years [no home and no stable job]
    5. I have not yet researched foreign companies (I do not know good websites with the financial information for non-US/CA companies and also what accounting adjustments need to be made to compare them; also I was told some US companies might have massive pension or lawsuit (for e.g. pollution) liabilities which need to be considered when evaluating their performance)

    [Bonus reason for very rich people: the duty to declare to CRA foreign property over CUMULATIVE value of $100k on T1135.]

    I agree that plurality of the world's best companies are listed on US stock exchanges which also boast the best variety of stocks. If I will have at least 100k USD outside of TFSA in the future, I plan to open a better brokerage account, migrate all of my holdings there, and diversify into non-Canadian stocks. In the long term, I will probably end up with less than 10% Canadian holdings and probably around 50% US, just because of the total stock market capitalization distribution.

    I would, nonetheless, also like to point to the fact that the indexes are not static. The SP500 index from 40 years ago had very different companies than it has right now. There is a big survival bias where a good chunk of small companies never make it to the "big boy" index and even from the big successful companies, not all of them survive in the long term. Canadian index has more cyclical resource and financial stocks. This will naturally lead to lower returns over time since more of these companies will not make it in the long term. Also, most big Canadian companies would be considered mid or small cap stocks in US and many would not even make it to the SP500 (its median market cap is 153 US billion, which is little more than the CAD market cap of RY - the biggest Canadian company). As a result, some might argue TSX and SP500 are not really comparable.

    What are your favorite US companies based on business quality (not necessarily price)? Mine is probably Brown Forman - a liquor company which survived prohibition, when US government made its product illegal nation-wide.

  3. Browns-Forrman is a fantastic company.

  4. Dear Penetrator,
    I was wondering if you and the community would be interested in making a list of global high quality businesses and doing some one-page quick summary of each of them. In early January, I would like to gradually start to make some spreadsheets and learn more about the companies over the weekends. With your feedback, I or all of us could help do a bottom-up financial summary for the companies which we could share with each other. This way, we could all learn more about how to analyze companies and also have a more up-to-date universe of interesting companies we might want to buy one day. I study/work in biology field and not in finance, but I think this would be the best way how to learn more about investing and financial analysis and how to improve my long-term portfolio performance. It could also fix my irrational Canadian bias by giving company-specific cash-flow numbers. Any thoughts?

    1. Well, these one page summaries are currently done by Value Line and I use them. I don't have to do the job.

    2. Thank you for the tip. I do not have access to Value Line and I am not sure if it covers stocks outside of US. I think making a high quality universe of 50-100 top-notch global companies would still be an interesting exercise for everyone.

      What do you look at on Value Line when evaluating a business and when deciding how big position you should allocate to it?

      Did you read the most recent CSU earnings report? I was thinking of learning how to track company performance based on some similar metric to Mark Leonard's "free cash flow available to shareholders" per share over time although I am not sure if this could be calculated for most companies from their published financial statements. There would need to be a lot of adjustments especially for cash-flow negative, growing businesses or for cyclical businesses. I do not know how to do any of these. I find even right now comparing companies in different industries quite challenging. I sometimes look at trends in mutual/endowment fund managers and do not understand their actions - sometimes they do the opposite of what I did several months ago and I do not know why.

      I used to rely on the analyst projections that my discount broker provided on the internet banking. These were incredibly misleading so I do not trust them anymore. I have even caught them retrospectively fudging their "estimates" after earnings. Now I have to blindly trust the company management to continue or improve their track record.

      I do not like not having some system and some quantifiable reason for investing. We should be rational and not emotional about investment decisions. We should know with some certainty at which price we should sell CSU to buy more MTY and vice versa to have the highest long-term risk-adjusted returns. If we want to improve, we have to be able to clearly define why we did what we did so that someone else would independently be able to replicate such actions and so that we can try to understand what we did right or wrong retrospectively.

      Professional portfolio managers do even inter-correlation random return Monte Carlo simulations to try to predict the most efficient position allocation. Obviously this is a little beyound our scope, but it still points to a systematic process and well established reason for everything they do. They do not act on hunches or trust of all the nice promises written by the management in their quarterly report outlook.

  5. I hold XAW in my RRSP for all my US/Global exposure.
    I use my TFSA for individual Canadian stocks.

    So far, my TFSA has a 3+ year Return of 18%