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Buffetting The Dollar and Eyeing Japan (BRKA)

by: John Bethel May 08, 2006 | about stocks: BRK.A    
John Bethel

John Bethel

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As a holder of several foreign (non-US) stocks, I'm well aware that currency fluctuations can impact portfolio performance -- for better or worse. I don't hedge my positions because (1) currency fluctuations tend to balance out over time; and (2) it's not economical for me to do so anyway.

Put simply, I try to ignore currency fluctuations and predictions of currency movements. I've NEVER bought a stock due to currency considerations. It's solely a matter of the company's prospect over 3-5 years and letting the currency chips fall where they may. That all said, I have to confess that the US dollar's prospects have me feeling better about owning some stocks domiciled outside my native country. And I see I'm not alone according to this morning's Wall Street Journal:

Berkshire Hathaway Inc. is likely to buy more companies overseas, partly because Chairman Warren Buffett thinks the dollar could weaken significantly.

Then this a bit further down the article:

Berkshire's agreement to purchase an 80% stake in Iscar Metalworking Co., an Israeli metal-cutting tool maker, fits Mr. Buffett's plan to increase the currency diversification of Berkshire's earnings as a way to protect from a sharp drop in the value of the dollar. Berkshire announced the $4 billion deal on Friday.

"We will have at Berkshire a fair amount of our earning power coming from other currencies and countries," said Mr. Buffett, adding that he plans to return to Israel to look for more businesses to buy. He said, however, that Berkshire, which owns more than 40 different businesses, "will always be predominantly in the U.S."

Messrs. Buffett and Munger said at a news conference yesterday that they hope the acquisition of Iscar, a family-run business in Israel with interests in South Korea, would encourage similar companies abroad to consider selling to Berkshire. Mr. Munger said he "would not at all be surprised to see something happen in Asia" in terms of future deals.

Regular readers of mine will find this interesting:

Mr. Buffett said he hopes to buy whole companies someday in Japan. "I think we could very well have something offered to us in Japan because you do have a number of significant businesses," he said, adding "it's not a low probability." He said increased shareholder activism in Japan is leading some managements to consider a sale to foreign companies. He added that Berkshire had worked on a deal with a Japanese company in the past but that it didn't work out.

I remember when Marty Whitman, Peter Cundill and Mason Hawkins were bullish on buying Japanese property and casualty stocks in the late 1990s, Buffett said he wasn't keen on them. Maybe he's come around. Or maybe they were just early. Or perhaps, since Buffett didn't say what he was looking at in Japan, I'm talking apples and oranges.

But his interest in the country is yet another indication that things are changing in Japan.

Related: Buffett Buys Israel’s Iscar: The Oracle is No Messiah

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