this is dangerous advice.. the japanese gdp and yen/usd or yen/other courrencies are far from independent. while strictly speaking what you said is true, the nikkei and GDP are going to be pretty heavily influenced by the value of the yen and you really want to think about what your exposures are before "hedging out" 50% or 100% of your "yen exposure". if not, you could easily end up in a situation where you're effectively short the yen when all you wanted to do was reduce your long position.

Of course Japanese GDP and the yen are covariant, but if you want to buy the nikkei without direct exposure to currency risk, you would execute exactly as prescribed.

This is not correct. You could be in a situation where currency activity is contributing to an adverse effect toward your position on Japanese GDP, but that is not the same as being effectively short the yen. This is totally standard practice when investing in foreign markets, there are even firms out there that do this specifically for large hedge funds/family offices (Google 'currency overlay' for more information).

you're wrong. lots of things that are "standard practice" aren't necessarily correct or intelligent. the exposure of a company or index to the currency it trades in is never going to be exactly 100%. if you hedge 100% of the value of the stock/index you're almost always going to be effectively net short the currency in question.

if you don't understand why this is the case, consider a hypothetical company that is based in japan, listed in yen, pays its workers in yen, but derives all its revenue from exports in foreign currencies.

maybe we're just arguing semantics because you're referring strictly to nominal values, but that's not the correct way to think about hedging.

Are there any general rules of thumb for EV/EBITDA and EV/EBIT multiples? Like for P/E people think a P/E>20 is usually a growth stock and below 12ish a company is usually considered a value stock. Is there an equivalent to EV multiples?

Sorry, but I just don't see what you're talking about. If I buy $100k of japanese equities, I want to do exactly $100k of USD/JPY to eliminate transaction risk, I don't care what effect the currency may have on GDP or vice versa.

If a company derives all its revenue from exports, it will do something very similar, probably using forwards. They may leave themselves a little wiggle room but it has nothing to do with what you're talking about.

I can sort of understand the logic behind what you are saying but I don't know a single person who would hedge currency risk in the way you're describing, in fact I've just spoken to someone with 20 years' experience in currency trading, both own book at IB and on behalf of other firms who said 'sounds like complete b**locks to me'.. I'm not trying to flame you, I'm just telling you that you're theorising about something that has no application in the real world.

Maybe it would help if you gave me a quantifiable example of what you are talking about, maybe then I'd be able to see the light.

transaction risk? what?

that certainly makes sense with a theoretical perfect company that perfectly hedges it currency risk... but good luck finding that company. perfect hedges in this context don't exist.


you're the one theorizing here. currency trading is completely different... obviously when you're trading currencies you hedge 1:1. when you own a japanese company you don't own yen though. you own a company. and there's no reason to assume that 1:1 is your correct currency hedge ratio unless the company itself actively hedges 100% of currency risk to its home currency. in reality multi-national companies don't do that though, partly because it would be silly to, and partly because its impossible.

if you want a concrete example pick a stock index for some foreign country like the nikkei and look at its historical volatility in USD in cases where a) you "hedge" out the currency risk at 1:1 and b) you only hedge out 50-70% of it. or if you're crafty you can go ahead and find the optimal historical hedge ratio. if volatility is consistently minimized with a hedge >90% i'll eat my words.

not saying that example's a definitive proof or anything, but it illustrates the concept

transaction risk (at least as I know it) = the risk associated with a transaction in another currency due to changes in the exchange rate over time. I'm sure there will be a definition somewhere on Google. I am aware there are other uses for the term also.

Again sorry, I just have no idea what you're on about, I don't see how the two are related. I'm not really interested in a historical example, it should be fairly straightforward for you to illustrate how you would calculate your optimal hedge (I should have said before assuming no transaction costs, obv if the cost of hedging is high it is rarely optimal to be 100% hedged), or at least point me in the direction of somewhere where this is illustrated. I've genuinely never heard anything like this before (wouldn't be the first or the last time), and I've now asked two different people because I just cannot make any sense of it and we've all come up blank!

sure...
japanese company XYZ, listed in yen. trading for 5 JPY/share.

XYZ is a manufacturing company that exports only to the US and will have expenses of 70 JPY per share for the first year and income of 1 USD/share, after which it will pay out profits and cease to exist.

in a perfect world XYZ's USD income will be perfectly hedged and will earn about 8 JPY/share. you can lock in this profit in USD with your 1:1 hedge.


then consider the same company, but with only 50% of the USD income hedged. meaning its revenue for the year will be 39JPY and 0.5USD per share, with expenses of 70JPY. what's your optimal hedge ratio now?




on a separate but directly related note, why do you think the strong yen is seen as such a problem for the japanese economy? if these companies are all perfectly hedged why would it matter what the yen does?

I am a complete noob to investing. I have been thinking about starting to invest... I am 21 and will be 22 in September.

After reading the thread about what books to read.... my question is what book should i start out with and what online blogs/sites and magazines are good to read?

Remember I have pretty much no idea about anything that has to do with stocks, mutual funds, etc. So all the help is appreciated...


Thanks.

from an article on Buffett today:

"If I have to buy (Treasurys) at a zero percent yield , I will," he says. "I don't like it, but we'll do it."

Why?

1. Interest rates have dropped in the last several days.
2. You'll get a better rate with a 10 or 15 year as opposed to a 25.
3. walk in the bank and ask their what their prime rate is on a 15 year and ask about their fees, get everything in writing and compare
4. If you can pay off the house with just cash and be comfortable I would definatly do this.

Question for you guys from a total stock noob

I work for UPS and we get a 5% discount on the list price of our stock buying thru work. Would now be a good time to start buying or should I wait awhile longer?

So I'm a noob and a few months ago began investing some chunks of change in an etrade account. Nothing fancy, just index funds. Figured play the market as a whole amirite? Yeah great timing.

Anyway today I threw a chunk of money into gold, I mean, it's going up and all, so it seems smart.

But having large chunks of money in both the stock market and gold seems like betting both red and black in roulette. When stocks tank gold tends to go up, and when stocks boom gold tends to go down right? So is having money in both a waste of time?

I mean, I understand the need to be diversified in your holdings, but I'm young and can afford to take risks. Should I just put all my investment money in one or the other?

Hey thanks for the reply.

Re: #4, Given the current dip, wouldn't it be a lot better to use that $ to invest? even if it was just in an index fund?

The current dip doesn't mean the market will go back up/is going to be huge ROI. Is that why you want to invest?

Yea basically. Perhaps flawed reasoning but I guess I just assumed that given the pull back, there should be more value opportunities out there that should net me a better ROI for the relatively "cheap" money I could get via refinancing my mortgage?

FWIW I'm looking at BRK, CSCO, and F

I'm def quite a noob at all of this, I suppose I was just taking this mortgage vs investing "conventional wisdom" as truth in the current climate. I'd love to hear some counter logic to learn etc

It's definitely true that stocks are cheaper than they were a week ago. If you had previously decided certain stocks were a buy at current prices, that is fine. Just make sure you have a reason (fundamentally) to buy stocks other than a decline in the market IMO. There is nothing to say people won't keep panicking and the market continues downward. This is the idea of "investing" rather than speculating/timing. Buy b/c the stocks make sense to buy at current prices, not b/c of a recent downswing.

Hello i am from Australia and going back about two years i invested some cash into two vanguard index funds:

Australian shares 50%
Hedged international shares 50%

I have also been contributing $400/month into each of these funds and the current balance is ~15k in each.

The fees for these two funds are as follows:


------------------ $50,000-------- Next $50,000----------Balance over $100,000

Australian Shares----- 0.75%--------------0.50%--------------------- 0.35%

Hedged Intl Shares------0.90%------------0.60%---------------------- 0.35%


Recently i found out that the vanguard ETF's have much lower fees:

Vanguard MSCI Australian Large Companies Index ETF 0.20%
Vanguard MSCI Australian Small Companies Index ETF 0.30%
Vanguard Australian Shares Index ETF 0.15%
Vanguard All-World ex-US Shares Index ETF 0.22%
Vanguard US Total Market Shares Index ETF 0.07%

1. Can someone explain the advantages/disadvantages between the ETF's and mutual funds?

2. Should i start investing in the ETF instead of mutual fund given brokerage costs is $20 a trade and at the moment i invest $400 monthly into both funds?

3. If ETF is the better option, should i invest less frequently, say 6 monthly instead of monthly to save on brokerage costs? or is the saving not worth missing out on potential gains?

Thanks!

Assuming you have a good chance of steady employment for 20+ years and are not retiring anytime soon I would finance as much as I could for as long as I could. I have to assume at some point in the next 30 years these rates will seem crazy low and your house payment will cost as much as a big night out on the town.

So instead of paying 180k now and being free and clear he should finance as much as possible and pay around 320k after interest?

Yes, 320k in the future < 180k now.

if the rate is super low, it would be advantageous to use that money towards earning higher rate of return. If the options are 1% savings account or pay off mortgage, it's an easy choice. If you start talking about using the money to gain a higher return, then it's not so obvious. Time value of money as unfrgvn stated.

whne they say they keep the rates low (us gov) arent they saying they will print money to buy bonds with?

Since this is a newbie question, I will stick this here instead of making a new thread.

I just started making some extra income and want to start putting 10% of my monthly income into investments, both short and long.

But I have no idea where to start, especially in this market. Should I look at option trading, bonds, straight stocks?

What reading would you guys recommend checking out?

Thanks so much! Very much appreciated.