Warren Buffett is widely accepted as a genius. His holding company Berkshire Hathaway (NYSE:BRKa) has posted 20% average annual gains across multiple decades. Only a handful of investors have matched this feat.
What most people don’t know is that there’s actually a quick way to determine how Buffett would invest in Canada.
Meet the clone in Canada Those who have heard of Prem Watsa know that he’s often referred to as the Warren Buffett of Canada. Since 1985, his holding company has produced 15% annual gains. That’s not as impressive as the real Buffett, but it still puts him at the top tier of long-term performers.
Watsa’s investment strategy is very similar to Berkshire Hathaway’s.
“Born in 1950, Watsa has become one of the best investors in recent memory,” I explained this summer. “His personal net worth exceeds $1 billion. Countless millionaires have been minted thanks to his investing prowess. His strategy, it turns out, is almost identical to Warren Buffett’s.”
Berkshire owns a bunch of insurance businesses that produce regular cash flow in the form of policy premiums. Watsa structured his business the same way. Berkshire then hands this cash to Buffett who invests it. Watsa handles the investment activities at his firm.
In total, Watsa believes he can achieve 15% annual returns when you combine investment gains and insurance profits. That’s exactly the return figure he’s generated for nearly 40 years. He’s clearly onto something.
How to follow the Canadian Buffett Like Berkshire, Watsa operates through a publicly traded company: Fairfax Financial (TSX:FFH). This stock doesn’t trade on any major U.S. exchanges, so it’s often ignored by large institutional investors. That’s a shame for them, but you can take personal advantage.
Because Fairfax doesn’t have the same name recognition as Berkshire, and because Buffett is a more famous figurehead, Fairfax stock trades at a deep discount. Shares currently trade at 25% below book value. Berkshire shares, for comparison, trade at 30% above book value.
The best part is that even Watsa realizes his stock is way too cheap right now.
“At our AGM and on our first quarter earnings release call, I said that our shares are ‘ridiculously cheap,’” he said earlier this year. “That statement reflected my recognition that in the 35 years since Fairfax began, I have never seen Fairfax shares sell at a bigger discount to their intrinsic value than they have recently.”
“I have now backed up my strong words by purchasing close to US$150 million of Fairfax shares in the market over the last few days, as I believe that this will be an excellent long term investment,” Watsa concluded
Bottom line Watsa is the Canadian Warren Buffett. His long-term track record is undeniable. Only a tiny fraction of investors has ever been able to beat the market over a multi-decade stretch, nonetheless post 15% annual returns.
For Canadians looking to buy the Canadian version of Berkshire Hathaway, Fairfax Financial is as good as it gets. If it wasn’t so similar to what Berkshire does, I’d imagine even the real Buffett would own a stake.
The post Warren Buffett: How to Invest in Canadian Stocks appeared first on The Motley Fool Canada.
The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool recommends FAIRFAX FINANCIAL HOLDINGS LTD and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares) and short January 2021 $200 puts on Berkshire Hathaway (B shares). Fool contributor Ryan Vanzo has no position in any stocks mentioned.
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