vendredi 23 juin 2017

The exchange rate

I'm sometimes restraining myself from buying US stocks because of the exchange rate. But I try to remind me that the current exchange rate is just a little bit below the historical exchange rate (something between 78 and 82 cents).

It's very easy to play with numbers and make them say what you want to say. Just pick the right numbers in the right situation and you'll look like a genius.

But if you find a great stock, you shouldn't bother about the exchange rate because great companies offer a great performance which will annihilate any exchange rate effect.

However, you have to find great companies because a shitty stock will offer a shitty performance. It's obvious, I know: a turd usually stinks.

For instance, if you bought Middleby (MIDD), O'Reilly automotive (ORLY) and Bed Bath and Beyond (BBBY) (all US stocks) in the summer of 2011, when the US and CAN dollars were at parity, you'd get that perfomance:

Middleby: 302%
O'Reilly: 244%
Bed Bath and Beyond: -40%

...while the canadian dollar has dropped by more than 25% for the same period. That's an additionnal 33% to your performance (1/(1-0,25)). So, even Bed Bath and Beyond wasn't such a catastrophe with that exchange rate.

Ok, now, let's take a look at the three same stocks between a time when the exchange rate was very negative for canadians and a normal time (today).

In 2002, the canadian dollar's worth was about 62 US cents. Let's say you've bought the same three stocks in 2002 and you've kept them until today, at a time when the canadian dollar's worth is about 75 US cents. What's the performance of the three stocks?

Middleby: 8184%
O'Reilly: 1579%
Bed Bath and Beyond: -7%

With such performance, does a variation of 10 or 15% of the exchange rate matter?

You won't find a lot of Middleby out there, I know. But as you can see, you'll get a lot of money, even if the canadian dollar crashes if you can find great US stocks.

Don't forget that I've played with numbers. You could probably destroy my picks over another period of time. But truth is: great stocks can make you rich in any circumstances. 

1 commentaire:

  1. I agree with this line of thinking. I use to get all bent out of shape worrying about the exchange rate between the Canadian and US dollar. As long as you are a long term buy and hold type of investor I don't think it matters much. Just focus on buying quality merchandise at discount prices if you can and you should be okay.