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Fairholme's Bruce Berkowitz on Investing In Emerging Markets
"It's hard enough when you're the home team, investing in your own backyard. I don't want to play an away game, where I don't know all the rules. So the answer is no. There's plenty to do here."

http://www.fairholmefunds.com/player/index.htm

-Gunnar
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I don't want to play an away game, where I don't know all the rules. So the answer is no. There's plenty to do here."

To which John Templeton would reply..."Thank you."

It's funny...I don't know much about U.S. stocks anymore precisely because I spend all of my time reading newspapers from other countries. Makes me boring at cocktail parties.

Tim
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I don't want to play an away game, where I don't know all the rules. So the answer is no. There's plenty to do here."

To which John Templeton would reply..."Thank you."


There's no right or wrong here IMO. You have to do what you're comfortable with.

Personally, I mostly focus on US stocks because it's easier to get the information I need to make investment decisions from my arm-chair through the internet.

Because it's Tim's day-job, he can afford to spend a lot of time digging into the information about stocks in foreign markets. Even then, he'll have an information gap. If only because you'll miss some publications in a language you don't speak. But also because of a different culture of disclosure and business ethics. Witness AOB.

I suppose you could philosophise whether more information, available to everyone, is a good thing or bad. I tend toward the former.

On top of that there's the dollar. Nobody knows of course where it is headed. But you can't ignore the fact it's down 30% compared to six months ago against currencies like the BRL (2.50 then vs. 1.71 now).

Mark
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It's funny...I don't know much about U.S. stocks anymore precisely because I spend all of my time reading newspapers from other countries. Makes me boring at cocktail parties.

It's funny. I'm often asked what I do for a living and after I explain my job at TMF the number one question is: What companies do you follow?

And the number one reaction after I say international or anything based outside of the US?

Oh...


Their loss, our gain :).


Best,

Nathan
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you can't ignore the fact it's down 30% compared to six months ago against currencies like the BRL (2.50 then vs. 1.71 now).

So you're betting on mean reversion?

Tim
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So you're betting on mean reversion?

I'm not betting on anything. Yet. But selling some BRL nominated bonds and making a downpayment on some beaten down U.S. real-estate starts to look tempting. Six months ago it was out of the question. My gut-feeling is that an exchange ratio of 2 is rather fair.

Mark
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"It's funny...I don't know much about U.S. stocks anymore precisely because I spend all of my time reading newspapers from other countries. Makes me boring at cocktail parties."

I suppose you're in a completely different crowd, but if I say anything about current events or the stock market it always makes for a failure at parties.

-John T
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My gut-feeling is that an exchange ratio of 2 is rather fair.

Yeah, I can get on board with that. I could see a sustained 1.75 or 1.5, though, if the next election cycle goes smoothly (likely), the US continues to spend (likely), commodities creep (up) and Brazil gets a handle on bureaucracy/crime/corruption (not quite as likely).

Tim
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Brazil gets a handle on bureaucracy/crime/corruption (not quite as likely).

Well, I see that last one as very, very unlikely.

But it wouldn't be the first time some currency exchanges remain skewed for an extended period.

Mark
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<<But you can't ignore the fact it's down 30% compared to six months ago against currencies like the BRL (2.50 then vs. 1.71 now).>>

But somehow we can ignore the fact that the dollar is flat relative to the real since last September.

All this panic about the falling dollar over the past six months seems a bit revisionist to me given the massive rush into the dollar as everyone became hyper risk averse and fled foreign markets and currencies last September.

The point we are at right now is about where we were prior to the market craziness hit and yet I don't recall the dollar's previous decline causing headlines.

This isn't to say I don't expect further weakening of the dollar, just that I'm getting tired of the alarmist nature of currency conversations (not refering to DutchMark, just the general info-sphere).

Perspective is required in all things.
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All this panic about the falling dollar over the past six months seems a bit revisionist to me given the massive rush into the dollar as everyone became hyper risk averse and fled foreign markets and currencies last September.



I agree.

Though it is a lot, the dollar has fallen from 90 to 75 ..... that is about 15%. Critical when figuring exchange rates, but also traceable in a large part to the fact That the discount rate is about .... 0%. Once the economy does show movement, the Fed will need to raise interest rates.

It's like your local bank offering X% for account interest and another offering X.5% .... you move your account. Same with currencies, the Fed pays little (or zero %) and investors go to a better paying currency. This "weakens" the dollar.

The economy begins to move, looks like inflation may be the next stop, the Fed raises rates to slow inflation ... strengthening the dollar.


http://www.marketwatch.com/investing/index/DXY

I think :)


Bears

Home Fool
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This isn't to say I don't expect further weakening of the dollar, just that I'm getting tired of the alarmist nature of currency conversations (not refering to DutchMark, just the general info-sphere).

No, no ringing of alarm-bells from my side. Just trying to see things in the right perspective, just like you. I think we're pretty much on the same page.

Yes, the dollar is about the same level vs. the real compared to a year ago. It even went to 1.60 at some point. But I thought it was getting skewed then too. I remember you guys telling me personally how expensive you thought Brazil was when we met there. And the real is even a lot more expensive now. And such feelings are relevant, as it's all about purchasing power vs. productivity. In my experience, when a currency feels too cheap, it always corrects itself. But it can take years to do so.

Compared to 2001 the dollar has lost nearly 50% of its value vs. the Euro. No matter how big the economic turmoil, such differences within a decade simply do not make sense between two economies that essentially not that different. Most likely at time the Euro was too cheap. But with the same likelihood I can say that right now the dollar is too cheap.

With the current level of US debt it's quite possible the dollar will go even lower still. But give it ten years and I'm pretty sure we'll see a big swing towards the other side at some point.

Mark
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There's another applicable quote from Seth Klarman applicable here:

The payoff to fundamental analysis rises proportionately with the difficulty of performing it.

I know Buffett has a "too hard" pile and that that concept would seem to run contrary to this, but given the modernization of the markets, Klarman's wisdom here is worth considering.

Actually, we were talking about this yesterday and someone said that while you can find "cheap stocks" anywhere you'll only find "inefficiently-priced stocks" in places where it's hard to look. Obviously, that latter group is what generates the largest returns.

Tim
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I have my own

Optimism about an investment is commonly not enough to risk investing in it.

A trap we commonly fall into


Bears

Home Fool
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This isn't to say I don't expect further weakening of the dollar, just that I'm getting tired of the alarmist nature of currency conversations (not refering to DutchMark, just the general info-sphere).

Why though? We've quadrupled our debt recently and have no plans to pay it back anytime soon. Just cause it's America doesn't mean it will always be that way.
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Actually, we were talking about this yesterday and someone said that while you can find "cheap stocks" anywhere you'll only find "inefficiently-priced stocks" in places where it's hard to look. Obviously, that latter group is what generates the largest returns.

Although I understand very well what you're getting at, let me throw in some devil's argument. If what you're saying is the case, then the market where all information is at everyone's fingertips should be efficient. Like the U.S. market. Ergo the U.S. market adheres to EMT.

No?

Let me throw out a completely different analogy. In games the better player generally wins. If it's a game of complete information, like chess, then the better player always wins when the difference in level is beyond a certain threshold. (And that difference is not so big on the absolute scale.) But with games of incomplete information like backgammon or poker, a very poor player stands a very reasonable chance to win every now and then against any player, no matter the difference in level.

If you consider yourself an above average expert, which type of game would you rather play? And another trick question: which game (not sport) makes the most money for the best players?

Mark
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<<Why though? We've quadrupled our debt recently and have no plans to pay it back anytime soon. Just cause it's America doesn't mean it will always be that way.>>

And how has this story changed (other than the recent jump in debt) in the past decade? It's not like we were ever planning to pay off our debt, but China kept buying.

They weren't buying with the expectation of principle payments. They were buying to support their mercantilist policies. I don't see their domestic consumption jumping so significantly that this will change any time soon. Hence, the alarm is just pointless media arm waving.

The fundamental problems with the dollar have been present for quite some time. Hence my lack of confidence in it long term.

But the situation has been sustained by countries (Germany, China, most of SE Asia) artificially supressing their currencies to support export industries which rely on American consumers. They can't allow the dollar to fall too far because then our exports (and domestically made goods) will become competitive and wipe out significant portions of their economies.

Nothing stays the same, but nothing changes overnight, either. America won't always be the king of the world, but China is a lot further away from supplanting us than dollar screamers would have you believe.
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