Warren Buffett once made a thoughtful remark: “Buy a stock like you would buy a house. Understand it and love it in such a way that you are content to own it in the absence of any market. “I don’t know about you, but when I bought my first home, the due diligence documents could have filled a big binder. Yet could I really say the same about my investment portfolio?
Speculate or invest?
It is an interesting check to know if I am investing as a speculator or an investor. A speculator will buy anything hot and then try to time a perfect exit. While I don’t have a problem doing this with a little ‘fun’ part of your wallet, it’s not much of an investment.
Investing is like buying a house or a business on the private markets. If you were to invest your hard-earned capital in a private company, chances are you would want to analyze the balance sheet, check the assets, touch and feel the products, and get to know the management team. You’ll want to make sure that time will only tip the scales in your favor. You would want to be sure that if even the stock market did not exist, your business would still have value to the world.
Warren Buffett’s strategy wins over the long term
It is a thesis on which Warren Buffett built his billions. Look for the best companies, invest in them and keep them “as long as they are good companies”. After a crazy year, the markets seem expensive. Many commentators claim that the market could be the victim of a crash. Maybe they are right. Still, that shouldn’t really matter. If you’ve researched the best companies and plan to hold onto them forever, a market drop or crash won’t matter in the long run. In fact, this could be a great opportunity to double your investment thesis.
Forget the market. Buy quality companies
The point is, market or no market, owning the best companies over the long term is an investor’s best bet to get really rich. Warren Buffett has built his career and billions on this principle. If I had to think of a company that meets the criteria for a very “permanent” investment, I would have to hand it over to Canadian Pacific Railway (TSX: CP) (NYSE: CP). You’re not much more permanent than a railroad – and Warren Buffett adores railroads. In reality, Berkshire Hathaway owns one of the largest BNSFs in North America.
CP Rail is an ideal stock of Warren Buffett
CP is an attractive “long-haul investment” for several reasons. First, in Canada, it operates as a duopoly with strong competitive barriers. Its transport infrastructure is impossible to imitate and its reproduction cost is prohibitive. It is Canada’s most cost-effective method of transporting tons of goods and raw materials. This business will not go away for a very long time. In fact, it is getting bigger. In 2020, CP saw some of its highest volume grain shipments!
Second, like a classic Warren Buffett stock, it’s good, but there’s still room for improvement. For many years, CP has underperformed competitors like CN Rail. Yet the company has now taken a relentless approach to improving efficiency. It constantly changes its operational formula to increase weight and volume, but at a lower overall cost. This will result in higher profit margins in the future.
Finally, CP has large land assets that it can monetize. He recently unlocked opportunities by developing a container terminal partnership with Maersk (ideal for an e-commerce world). All of this to me represents excellent Warren Buffett stock. It presents strong barriers to entry, room for improvement and underlying opportunities to unlock value. Stock is not cheap, but it is definitely a stock to buy when the market corrects and hold onto forever.
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Fool contributor Robin Brown has no position in any of the stocks mentioned. David Gardner owns shares of Canadian National Railways. The Motley Fool owns stock and recommends Berkshire Hathaway (B stock) and Canadian National Railways. The Motley Fool recommends Canadian National Railways and recommends the following options: January 2021 short options $ 200 on Berkshire Hathaway (B shares) and January 2021 long calls of $ 200 on Berkshire Hathaway (B shares).