IRA GLUSKIN

I am very proud to be a Canadian for so many reasons. When commentators are criticizing our lack of international business success stories, I want to stand up and scream. What about Four Seasons Hotels or SNC Lavalin? There are many more, but these two are at the very top.

I have just completed Margaret MacMillan's book Nixon in China, which I heartily recommend. She is another great Canadian success story. Naturally, being Canadian, she remains unpretentious and polite.

I provide this background because it is time to diversify further from Canada. I am not advocating jumping ship. I just think the case for Canadian equities is relatively weaker than it was a year ago. My fellow columnist Tom Bradley has written on this topic on more than one occasion. He claims that many Canadian investors have most of their assets invested exclusively in Canada. As some of you know, I don't recommend making these gigantic overview decisions on a frequent basis. Our firm in the 1990s had a high percentage of our clients' portfolios in U.S. equities. This wasn't a radical point of view.

At that time, almost everybody in our investment world was resigned to the idea that Canadian stocks and our currency would continue to lag the competition.

In 2001, we increased our Canadian equity weighting heavily. This was an epic decision and was based on a combination of good luck and foresight. We're not reversing that position now, but it is time to peel off some of your Canadian assets.

My partner Bill Webb is always referring to the future e-mail from China. This is our shorthand for referencing the boom in commodities and commodity stocks that has emanated from the economic strength in China and India. It's going to stop one day, but we don't know when. Bill and I do not believe that we will be the first to know.

The world of commodities follows the global economy closely. Although there are conflicting opinions, I believe that the strength of China/India will persist for years. Commodities won't collapse, nor will the Canadian dollar, and the Canadian stock market will hold up. But if I'm wrong, in what direction will I be wrong? I'd be surprised if we saw the revival of the boom conditions that we enjoyed a year ago. After all, housing has collapsed in the United States, and natural gas is selling for a fraction of the price that it was a year ago. Oil is being supported by a reinvigorated OPEC, rather than demand. Miraculously, our dollar has not collapsed. Most of us incur the majority of our living expenses in Canadian dollars, so it makes sense to always keep a large percentage of our investments in Canada. However, there is no logic in betting the entire ranch on Canada.

I've visited New York City regularly for many decades. Last week my wife, Maxine, and I celebrated our 12th wedding anniversary in the Big Apple. During our stay I took a walk in midtown to smoke a cigar and catch up on voice mails. I found myself on Park Avenue staring at the Seagram's Building, which was of course built by Canadians and is very close to another major tower built by Olympia and York. My mind was preoccupied with the topic of buying U.S. equities and why Canadian investors apparently had so much trouble producing superior rates of return in this market.

According to the consultants, Canadian institutional investors, on average, beat relevant Canadian indexes, but not the pertinent U.S. indexes. Why should this be? The first excuse is that we are not located in New York. This is pretty lame since most U.S. investors, including institutional investors, are not located in New York, either, and they seem to cope just fine.

Is it the language? Obviously not. Do we not watch their sports and mirror their culture? On balance, there is no reason for us to perform worse. One theory of mine is that in Canada we are typically spoon-fed by the sell side. Brokers bring management around all the time. They will hold your hand if you let them.

The U.S. stock market is not just a bigger version of Canada's stock market, it's a quantum leap upward, with dramatically more choice among companies and industries. My style of investment management has always been to know a company's management quite well, whenever possible.

Fifteen years ago, my former colleague Ann Mclean and I identified a variety of U.S. opportunities, but the travel schedule was very intense. Today the technical improvements in disclosure, and the existence of Sarbanes-Oxley make much of the old-style research process obsolete. This may help to explain why I personally manage very few U.S. dollars, leaving the challenge to the young guys and girls. I am happy to report that because of their efforts, our firm's U.S. track record is a good one.

Obviously many Canadian investors have no trouble succeeding in the U.S. markets. It is also not necessary to invest in the United States.

The rest of the world is also available. A variety of Canadian institutional investors have demonstrated clear abilities in the international investing field. Most of these guys only deal with big institutions. Fortunately, Canadians are blessed with many mutual funds with impeccable international track records. So the little guy (for a change) is not really behind the eight ball, but buying international stocks on a stock-by-stock basis is recommended only for the very sophisticated.

Ira Gluskin is president and chief investment officer of Gluskin Sheff + Associates.