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Value Talk - Center for Value Investing Alumni > General Category > Analysis and Techniques > Dealing with Exchange Rates

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Author Topic: Dealing with Exchange Rates  (Read 591 times)
mkazmaier
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« on: October 08, 2008, 11:13:36 AM »
I was wondering what people take is on how to factor currency exchange rates into company valuation.  I have recently been looking at a lot of US stocks for my RRSP portfolio but now that the Canadian Dollar has started to drop I am wondering what kind of factor currency should play in valuation.  It would be easiest to just by in US dollars but RRSP accounts don't allow that option so I am stuck with trying to factor in the exchange rate.  My first idea was to simply look at the mean US / Cdn exchange rate over the last say 30 years and then use the deviation from the mean as modifying factor for the valuation but that sounds really simplistic.  Does anyone do it differently?

Mike
« Last Edit: October 08, 2008, 11:18:10 AM by mkazmaier » Logged
Mark Jr
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« Reply #1 on: October 08, 2008, 02:48:50 PM »
Well I'm Mr. Doom, so I have been more or less out of US equities for years because I've been convinced the USD is going to honest-to-god CRASH.

The exception was when the CDN was at or about it's highest, I bought some Berkshire Hathaway, but that's about it.

If I'm looking at a US issue I tend to only really consider them if they also trade on the TSE so I can buy them in CDN dollars.

I know this is probably the opposite of what we should do as value investors, we should be buying strong US companies on US dollar weakness (or CDN strength), but the paranoid side of me suspects that the USD itself may be a value trap. (Now that there are about 3 trillion of them more this week than there were last week)

But for valuation purposes, I just do the entire thing in the currency of the financial statements and compare the results to the price of the stock in that currency. Any exchange issues would be peripheral to that.
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