Geoff Considine

Foreign Investing and Diversification Lessons From Berkshire Hathaway

Hi FIG Guru:

It is very easy to look back and say that there are ways that Buffett could have done better in the last ten years by doing something different. You simply look back and say that a manager should have invested in whatever the best performing asset classes were over that period. With perfect hindsight, I can outperform Buffett. With looking forward, I can dream of that. Now, Buffett has always been unashamedly biased towards the U.S. in terms of investing and people who have put money into emerging markets have outperformed over recent history. That said, Buffett has lived through the downside of emerging markets when overall market volatility swings up--thats the payback. Many foreign markets--developed and developing--have historical volatility that is vastly above what we have seen over recent years:

etf.seekingalpha.com/a...

You don't need to take my word for it. See the links in the articles above to Campbell Harvey (Duke U.). He has performed a range of studies on country risks.

So...who knows who will be right. There will always be a way to look back and find a strategy that would have been better. Emerging markets and many foreign economies have a higher expected future return than the U.S. but also have considerably higher risk (in general). There is no free lunch. U.S. investors are wise to invest where their is growth but also need to be congizant about the risks. BRK's conservative approach to foreign investing has some appeal.