Burgundy has long been a proponent of global investing. We believe that limiting the geographic scope of your equity investments will both reduce return potential and add to portfolio risk. There are simply too many high-quality businesses located outside of Canada with the characteristics that should, as part of a portfolio, protect and build our clients’ wealth. But for most of the past decade, investing in global equity markets has frustratingly underperformed investing solely in Canadian equity markets (with only a recent reversal of this trend).
I recently read an article by Michael Nairne discussing why “Wealthy Investors Go Global.” This article combines the “go global” message, to which Burgundy subscribes, with another topic we frequently discuss on this blog: the psychology of investing. In this case, Nairne explains the “home bias” – why many Canadians keep favouring Canada, despite evidence of growing global opportunity. The home bias is rooted in our natural tendency as humans to flee when faced with danger (see our post on the primitive brain). When confronted with the unfamiliar, even something seemingly innocent, cortisol is released into the human brain, triggering a cautious fear-based response and a subconscious bias towards the familiar. When it comes to investing, this results in larger than reasonable allocations to local investments.
So don’t let the past decade or the natural human bias towards the familiar cloud what is most important: long-term investment objectives. We believe the way to achieve our clients’ objectives without taking on unnecessary risk is by identifying high-quality companies, no matter where they may be domiciled, and investing when they are available at a discount to their intrinsic worth. With Canada constituting only a small percentage of the total investment sphere, the global opportunities are too great to ignore.