Brendan Burgess
Founder
- Messages
- 53,357
Terry Smith, a legendary investor, had a great article in the FT recently. The whole article is well worth reading, but I particularly liked this bit.
"I would be hard pressed to name the least well-understood subject in investment given the wide choice available, but I suspect that currencies is among the leaders. Over the past five years I have heard lots of people talk or ask about the impact of currencies in a manner which betrays a complete lack of understanding of the subject. The commonest question or assumption about our fund is the impact of the US dollar, since the majority of the companies we have owned since inception are headquartered and listed in the US.
This makes little or no sense. A company’s currency exposure is not determined by where it is headquartered, listed or which currency it denominates its accounts in. Yet this does not seem to stop people assuming that it does and making statements about the exposure of our fund to the US dollar, based on where the companies are listed.
We own one company which is headquartered and listed in the US, but which has no revenues there at all. Clearly this assumption would not work very well for that company, any more than it would work for the UK listed company we own which has the US as its biggest market and which, perhaps unsurprisingly, reports its accounts in US dollars.
Nor could we understand the reasoning of the commentators who wrote that our holding in Nestlé had benefited from the rise in the Swiss franc. How? Ninety-eight per cent of Nestlé’s revenues are outside Switzerland. It may be headquartered and listed in Switzerland and report in Swiss francs, but the fact is that a company’s currency exposure is mainly determined by where it does business. In Nestlé’s case the Indian rupee is a bigger exposure than the Swiss franc."
"I would be hard pressed to name the least well-understood subject in investment given the wide choice available, but I suspect that currencies is among the leaders. Over the past five years I have heard lots of people talk or ask about the impact of currencies in a manner which betrays a complete lack of understanding of the subject. The commonest question or assumption about our fund is the impact of the US dollar, since the majority of the companies we have owned since inception are headquartered and listed in the US.
This makes little or no sense. A company’s currency exposure is not determined by where it is headquartered, listed or which currency it denominates its accounts in. Yet this does not seem to stop people assuming that it does and making statements about the exposure of our fund to the US dollar, based on where the companies are listed.
We own one company which is headquartered and listed in the US, but which has no revenues there at all. Clearly this assumption would not work very well for that company, any more than it would work for the UK listed company we own which has the US as its biggest market and which, perhaps unsurprisingly, reports its accounts in US dollars.
Nor could we understand the reasoning of the commentators who wrote that our holding in Nestlé had benefited from the rise in the Swiss franc. How? Ninety-eight per cent of Nestlé’s revenues are outside Switzerland. It may be headquartered and listed in Switzerland and report in Swiss francs, but the fact is that a company’s currency exposure is mainly determined by where it does business. In Nestlé’s case the Indian rupee is a bigger exposure than the Swiss franc."