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Author: HooDaHeckNose Old School Fool CAPS All Star Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 847  
Subject: With declining dollar are ADRs really best? Date: 5/9/2008 7:26 PM
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As I attempt to educate myself I have become increasingly pessimistic about the US economy and the dollar. A major reason for wanting to invest in foreign companies is as a hedge against the deterioration of our currency.
It seems to me that purchasing ADRs, while convenient, is undermining my main goal for foreign investments.
IF I am correct that the dollar will fall much further, am I better off opening an account that allows me to purchase shares directly on foreign exchanges, even though the process is less convenient and more costly?

(I've just discovered Peter Schiff and am enthralled)

Thanks

John
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Author: HooDaHeckNose Old School Fool CAPS All Star Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69 of 847
Subject: Re: With declining dollar are ADRs really best? Date: 5/12/2008 6:08 PM
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Nobody has an opinion?
Not even a snide comment?!

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Author: drdrab Two stars, 250 posts Old School Fool Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 70 of 847
Subject: Re: With declining dollar are ADRs really best? Date: 5/13/2008 7:32 AM
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HooDaHeckNose

Love your handle and I think it is also the answer to your question!

That currency stuff gives me a headache. In the end I think it all evens out if you are US based. I am not an American and don't ever plan on converting my money to US, so I try to buy on the home exchanges when possible. I have it spread around pretty good now. London, Tokyo, Toronto, Johannesburg and USA.

Here are a few old threads I dug up. There are more scattered around the boards on this but I am supposed to be working now so should probably stop messing around.


http://boards.fool.com/Message.asp?mid=25133561&sort=whole

http://boards.fool.com/Message.asp?mid=25367955&sort=whole

Regards
drab

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Author: TMFeatnbybears Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71 of 847
Subject: Re: With declining dollar are ADRs really best? Date: 5/13/2008 10:28 AM
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Just my lazy opinion, unless you are talking large volumes I think ADRs are just cleaner and easier to work with. And no hassles with foreign dividends and taxes.

But, I could be all wet and more lazy than knowledgeable on the subject.


Bears

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Author: HooDaHeckNose Old School Fool CAPS All Star Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 72 of 847
Subject: Re: With declining dollar are ADRs really best? Date: 5/13/2008 12:23 PM
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drab:
Thank you for the links. There does seem to be quite a lot of negativity about ADRs there.
The exchange thing would give me a headache too, I'm certainly not interested in currency speculation. It just seems to me that if I invest directly in a foreign currency and IF the dollar depreciates against that currency, then any gains in the investment are magnified by the currency difference when I repatriate my money. Conversely, any gains in ADRs are diminished, since the gain is in dollars that are worth less than the dollars that I originally invested.
In general, I'd kind of like to take a "vacation" from the US economy for the next few years. I'm thinking of buying shares in boring, dividend paying foreign stocks (the equivalent of PG, MO, GE, etc) and just let them sit for a few years.
I don't expect armegeddon; however I do think that there a few more shoes to drop, how long can the fed continue to shield the banks from all of their bad debt? The signs just aren't good for the US economy right now and I think there's more hurt to come.

Thanks again

John

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Author: HooDaHeckNose Old School Fool CAPS All Star Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 73 of 847
Subject: Re: With declining dollar are ADRs really best? Date: 5/13/2008 12:31 PM
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Bears:
Thanks for your input.
Seems to me that ADRs don't shield me from foreign tac=xes on dividends as I see them withheld on my statements.
The whole ADR process seems pretty murky to me I don't really understand what fees I am paying for the privilege of investing in ADRs (seems that there are some though)

As to volumes, well everybody's numbers are different but I am thinking of having more than half of my investments in foreign stocks.

Seems to me that this would be a worthwhile topic for the GG staff to address

Thanks

John

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Author: TMFDoraemon Big red star, 1000 posts Old School Fool CAPS All Star Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74 of 847
Subject: Re: With declining dollar are ADRs really best? Date: 5/13/2008 3:54 PM
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Hi John,

First, I apologize for the delay in responding. There's a bunch going on and I try to get to the questions on existing recs first. Second, excellent screen name! Third, welcome to GG!

Ok, let's see if I can help with what's being discussed.

- The fees on ADRs are low and generally come out of dividends. In the grand scheme of things they're not material, and much cheaper than investing locally.

- As for the currency impact, I agree with what Bears said. ADRs generally provide the same benefits as investing in the local shares, but with less headaches. The costs to setting up global brokerage accounts aren't trivial, the commissions are often higher (stamp fees in the UK, HK, etc), and even where some of these things are simplified (ie. E*trade), the currency conversion costs for getting into and out of an investment can be prohibitive. Longer holding periods and willingness to keep money in the same market/country can help to balance this out, having large sums of money to invest makes the percentage costs of some of these fees easier to handle too. But for most folks going with ADRs is the easiest and most cost effective way to go right now (the future could be different).

Most important to what you asked is that ADRs will generally provide the currency effect you asked about. ADR share prices in the US generally move based on the price move in the home market +/- the minute to minute move of the USD and related currencies to each other. There are a couple of exceptions that I've seen, but each was unique.

In general you can check this for yourself by looking at the local share price, the adr ratio, and the exchange rate and then doing the conversion. You can also go backwards from the US share price to the local share price. If you do it again the next day you'll generally see that the US ADR price will very closely reflect the movement of the local share price and exchange rate movement.

As an example a bunch of Japanese companies that trade in the US are down or flat over the last six months in Tokyo. But if you bought the ADRs of the same companies here the losses are much smaller, or in some cases there are gains. This is because of the yen's rise from 115-120:$1 to 100-105:$1.

Some of the big banks have lots of info on ADRs on their sites with how they work, the advantages, etc. A couple of links are below:

http://www.adr.com/research/about_over.html

http://www.bnyadr.com/dr_edu_basics_and_benefits.jsp

Best,

Nate

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Author: HooDaHeckNose Old School Fool CAPS All Star Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 75 of 847
Subject: Re: With declining dollar are ADRs really best? Date: 5/13/2008 6:19 PM
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Nate:
Wow, thanks!
I really appreciate the insight, I guess I have some more thinking to do.

John

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