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Bill Freehling
Bill Freehling

Is Warren Buffett Exploring The Amazon For Berkshire Hathaway?

September 04, 2010 | About:
Warren Buffett may be exploring the Amazon region for fertile future investments for Berkshire Hathaway.

A Brazilian magazine is reporting that Berkshire executives visited Brazil about a month ago to check out the country for future investments, Forbes writer Keren Blankfeld notes in a recent blog post.

Berkshire is reportedly interested in starting an acquisition company in Brazil that would potentially buy up land along the Amazon.

There’s no confirmation out of Omaha whether this report is accurate, but it wouldn’t be surprising. Though Buffett says he remains bullish on America, Berkshire has increasingly looked overseas for investments over the past few years. Munich Re, Posco, Swiss Re, Tesco, Sanofi-Aventis and Iscar are among the examples. Buffett has said that part of his interest in Burlington Northern Santa Fe Corp. stemmed from the railroad’s ability to move goods coming in come from China.

Further, Brazil’s economy is booming. The country’s increasing sophistication is exemplified by its ability to attract the World Cup in 2014 and the Summer Olympics in 2016. Also, Buffett has some experience investing there already.

In his 2007 letter to shareholders, Buffett revealed that Berkshire made an investment in Brazil’s currency, the real. Here is what Buffett had to say about the investment in that letter:

At Berkshire we held only one direct currency position during 2007. That was in – hold your breath – the Brazilian real. Not long ago, swapping dollars for reals would have been unthinkable. After all, during the past century five versions of Brazilian currency have, in effect, turned into confetti. As has been true in many countries whose currencies have periodically withered and died, wealthy Brazilians sometimes stashed large sums in the U.S. to preserve their wealth.

But any Brazilian who followed this apparently prudent course would have lost half his net worth over the past five years. Here’s the year-by-year record (indexed) of the real versus the dollar from the end of 2002 to yearend 2007: 100; 122; 133; 152; 166; 199. Every year the real went up and the dollar fell. Moreover, during much of this period the Brazilian government was actually holding down the value of the real and supporting our currency by buying dollars in the market.

Since then, as the U.S. economy has sagged, Brazil’s growth has remained impressive due in large part to its rich natural resources and increasing ability to tap them profitably.

The Wall Street Journal reported today that Brazil’s gross domestic product increased 8.8 percent in the second quarter compared with a year ago despite an increase in interest rates. The country is on track to grow at least 7 percent this year, its best rate in 24 years. Only China, which Buffett is reportedly visiting later this month with Bill Gates, is doing better.

Today’s WSJ also reports that Brazil’s state-run oil giant Petroleo Brasileiro (commonly called Petrobras) plans a share offering that could raise as much as $65 billion for its ambitious plans to tap into huge offshore oil reserves.

So how can retail investors get a piece of Brazil’s growth? Many internationally focused mutual funds, including Dodge & Cox International, report having investments in Brazil. There are numerous exchange traded funds that focus exclusively on Brazil. Click here to see a partial list.

Be careful, though. As Jeremy Siegel writes in his book “The Future for Investors,” booming growth in a country doesn’t necessarily mean its stock market will do well if investors have already bid up the shares on excessive optimism for the future.

About the author:

Bill Freehling
Bill Freehling
For gurufocus.com
[email protected]

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