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Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤
No. of Recommendations: 0
I thought this may a good place to post this question as UK stocks have been discussed here due to the devaluation of the dollar.
There's now alot of discussion about the pound devaluing due to the UKs poor fiscal position and will do so either due to lack of confidence in the bond market (budget in November) or because they'll have to print money and inflate obligations away.
Currency is not something I usually spend too much time thinking about as I just want to buy decent companies and sit on my hands, however, also being aware of the overvaluation of the US market and the fact I'd have to bring funds back home into £'s if sold im thinking im better off sitting out the next 6 months fully invested.
I'm 30% Alphabet 10% Nike, 10% Oxy 40% Chinese ADRs and HK (all doing nicely) remaining 10% other US/UK positions.
As Munger says sometimes it's best "to do nothing"
Thoughts?
No. of Recommendations: 14
sometimes it's best "to do nothing"
Sounds like sage advice.
The forex markets are, within the finance world, the closest thing to a random number generator that I've encountered.
To be honest I've made literally millions doing forex trades, and it scares the heck out of me. I don't do that any more. Being lucky is better than being smart, and it's wonderful to finally realize you were lucky and stop pretending you were smart.
There are billions of dollars of very smart money out there looking at every possible fundamental and trying to predict the forex markets. Liquidity is almost infinite and trading costs are essentially zero, so it's the perfect playground for them. There are almost no amateurs playing at any size, so nonsensical overshoots are rare. (other than some central banks that are not profit motivated, sometimes). So if you think you know better than the consensus of that crowd, go ahead!
I have more of my cash in sterling at the moment than anything else, by a small margin. Maybe it will have been a good idea, maybe it won't, but I'm aware I really don't know.
The most primitive of techniques is that the major currency with the highest short term interest rate rises the most. At the moment, that's GBP. But that rule is only right maybe 55% of the time. Meh, some casinos make a living with a smaller edge than that.
Jim
No. of Recommendations: 4
The forex markets are, within the finance world, the closest thing to a random number generator that I've encountered.
To be honest I've made literally millions doing forex trades, and it scares the heck out of me. I don't do that any more. Being lucky is better than being smart, and it's wonderful to finally realize you were lucky and stop pretending you were smart.
I know a guy who used to trade forex for a central bank that held tens of billions of reserves in various currencies. At the peak, he managed well into the 9 figures. He was a pretty good trader. He told me that the main secret is to stop yourself out IMMEDIATELY on any trade that didn't work out the way you expected. I suppose better to take ten quarter cent losses and one 4 cent gain and have a net gain over that period.
I've never traded forex, I think it would be way too stressful to me.
No. of Recommendations: 3
Unless a currency goes "critical", it's important to remember that the relationships between currencies are just ratios. The value of an international stock will tend to self-rectify in terms of your native currency. If you are buying in USD, and the GB pound drops compared to the USD, all else being equal, I would expect the price in GBP to go up, but in USD to stay about the same.
Jeff
No. of Recommendations: 0
Makes sense; companies with international exposure benefit from foreign earnings converted to local currency. Eg Diageo.
However domestic only companies could suffer from higher import costs and inflationary pressures with no offsetting from overseas revenue. Bad for housebuilders and UK retailers etc.
No. of Recommendations: 0
How do you think British Land (REITS) would perform in such an environment? When Sterling depreciated post Brexit the BLND share price also went down over an extended period.
I've watched a few clips of Pabrai talking about his investment in Reysas the logistics company. Turkey has suffered from currency devaluation and inflation, however I believe they secure their contracts in Euros and USD? So therefore mitigates the risk and has resulted in an appreciation of the share price.
No. of Recommendations: 8
How do you think British Land (REITS) would perform in such an environment?
They are pretty much purely local. If the pound loses 10% of its value on a trade weighted basis, their revenue and expenses and profits will all fall about 10% on a trade weighted basis. At least there is no material unbalanced currency exposure. To a first approximation one would expect the price to be flat in sterling terms.
The other big input is of course interest rates. If the UK economy takes a steeper turn downwards, it's pretty likely that an interest rate cut could happen and one might see a period of lower [re]financing rates for them. On the other hand, if the economic slide is precipitated by a bond market crisis like a buyers' strike, then all refinancing interest rates will rise and that's bad for them.
Overall, their profits (and any share price gains) come from selling properties for more than they cost because the great majority of their current income is simply paid out as dividends. A weak currency could in theory make real estate more attractive to foreign buyers (good), but perhaps more likely is that it would be accompanied by a weak economy which isn't good for real estate prices as a rule (bad).
British Land (BLND.L)'s stock price was about 870 pence a decade ago, and is 335 now, so without the dividends the price has been falling 9.1%/year. Buyers today are optimists who think the pain is over, the price having fallen more than the value, and at least that the yield will offer a positive return from here. I'm among them, though I can't say the investment case is flawless. My position looks good measured in shrunken US dollars, because I sold US dollars to buy the position when the US dollar was a lot higher than it is now.
Jim
No. of Recommendations: 1
