Euro vs Contrafund Update, or How to Buy a Glider Affordably

Last fall someone asked how to buy an affordable glider from Europe
with the Euro going thru the roof. My response was: "Invest your money
sensibly and wait". I suggested a top ranked diversified mutual fund
such as Fidelity's Contrafund. Here is an update on that strategy.

Euro: $1.2944 (11/15/04)
$1.3165 (3/20/05)
$1.1914 (7/5/05)
-7.957%

FCNTX: $54.79 (11/15/04)
$57.19 (3/20/05)
$59.33 (7/5/05)
8.2862%

Clearly the strategy is working (the differential is 16.2%). Mike
responded with the concern that the Euro was predicted to rise back up
to 1.35 in the next 6-12 months. I wonder what they are predicting
today? My guess is the opposite, but who am I to say? The response to
those predictions is if they REALLY knew they wouldn't and they would
be mortgaging the house to buy currency futures. In reality the rising
Fed Funds rate is making the dollar more attractive to foreigners. And
the Fed rate is only going to go up in the future.

Someone emailed me noting that you would have to pay taxes on your gain
in FCNTX. OK, in the U.S. this will be mostly a capital gain if held
for a year or more (15%).

While we are not yet back to where the Euro hit its all time low, this
strategy is within striking distance (13%).

See you next quarter.

Tom

Tom:

Well, the Euro did peak pretty much as expected close to 1.35, but then
dropped more quickly than earlier predictions called for as the dollar
strengthened and the Eurozone weakened.

The pundits (and I don't claim to be one!) predict a further softening
of the Euro down to around 1.12 to 1.15 in the next few months. Then
it's anyone's guess.

Tom, even though I argued with you, I followed a similar investment
strategy and hope to buy a new glider soon.

I'm not sure that I would call $100k affordable to most folks, however.
I rather like the comment of one old timer who said he didn't like to
fly any glider costing more than a year's salary! I kind of feel the
same way.

Regards

Mike

My point about the Euro prediction is don't trust it, currency exchange
rates behave as a commodity and are very volatile. I do expect the Euro
to drop further, simply because the Fed is raising rates (there is also
a glut of savings - yes, savings - around the world looking for a place
to park). My strategy doesn't attempt to predict exchange rates; it
simply rewards patience.

Affordable, of course, is a matter of perspective. I definitely would
not call a $100k glider cheap! But $100k is A LOT more affordable than
$135k. A year's salary is a reasonable safety valve for the risk of
concentrating too much assets in a single investment (if you are
working for a salary).

Tom

Does that mean when you retire, you _upgrade_ to a 1-26? ;-)

Mike the Strike wrote:

I rather like the comment of one old timer who said he didn't like to
fly any glider costing more than a year's salary!

309 wrote:

Does that mean when you retire, you _upgrade_ to a 1-26? ;-)

Worked for me!


Jack

Whatever floats your boat - the retrieves are shorter and the wings
lighter!

My financial advisor told me to put everything I had into canned food
and shotguns.........