1/31/2008

Going Foreign

This 200 second video interview shares how the dollar is down 12.5% from the Euro in this past year. Because cutting interest rates lowers the value of the dollar, now is probably a good time to invest in foreign companies, foreign currencies, and foreign markets. Because investors see that they will be more likely to get a better return by investing internationally, the demand and price of foreign currencies will increase even more. The video stated that the CurrenyShares Canadian Dollar Trust (NYSE:FXC) was up 22.9% this past year. Companies in the U.S. that have a lot of foreign sales or sell inelastic consumer staples, such as toothpaste and soap, should fair better than other U.S. firms, according to the video.

7 comments:

Dr. Tufte said...

I wouldn't support a blanket recommendation like this.

The whole point of learning about efficient markets is to recognize that 1) if this was great advice, 2) everyone would follow it, and 3) there wouldn't end up being much advantage to it.

Gavin said...

Extra Credit - Dr. Tufte
This is a blanket recommendation and as the world becomes more globalized this doesn't work. Any wise investor knows that she/he has already missed the boat on this advice. Should have traded for euro's a few years ago when they were cheaper. Efficient markets require that we make assumptions before events happen.

Trinity said...

Dr. Tufte said it is not a good blanket statement. While I agree that there is rarely a blanket statement that can apply to investing, it is true that no matter which company you pick in the US, an identical company in a strong currency automatically guarantees a better return. Many mutual fund managers first pick currencies that will yield the best returns then begin picking industries then companies. Many people fail to realize the powerful effects of exchange rates.

Reagan said...

Dr. Tufte talked about the reasons we learning about efficient markets. Trying to exploit inefficiencies in the market generally costs people a lot of money. This may be possible if you are have asymmetrical information but in an efficient market we learn that this generally comes from insider information. I still prefer the information we learn in our finance classes, develop a portfolio and eliminate as much market risk as possible. Unless you have asymmetrical information that no one else has stick with how efficient markets work.

TheFindlay said...

Dr. Tufte
I agree with you on this one. We should invest according to our needs and our financial goals. When we invest with a trend/the crowd we continue investing on trends and with the crowd. If we invest with intelligence and research we retire and enjoy our returns. You can quote me on that one!

Jacques said...

Dr. Tufte's three points sum up efficient markets very well. I remember hearing this investment advice around the first of the year specifically from the mouths of Soros and Buffett, two very well-equipped investors, and I thought of the efficient markets hypothesis and how it was clearly too late to jump on. For how widely accepted this idea is, it's funny how conveniently it can be ignored.

Dr. Tufte said...

-1 on Reagan for a spelling error.