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Warren Buffett: Europe’s The Next Great Investment Destination
Aspire, Thought Leaders | 27 February 2015
By: Vance Wong
Articles (74) Profile

Following billionaire investor Warren Buffett’s exclusive interview with Fox Business News, the 84-year-old philanthropist acquired a controlling stake in Detlev Louis Motorrad-Vertriebs (DLMV) for a little more than 400 million Euros (US$456 million).

The investment looks to be a continuance of Berkshire’s long-touted growth philosophy, that is, to make a modest number of substantial investments in firms it believes will generate great returns.

DLMV Acquisition A Door Opener?

DLMV is a motorcycle accessories retailer. The company is a family-owned business and adds on to Buffett’s automotive portfolio. Although the motorcycle apparel retailer might not be a large business, Buffett explained that the current regulatory and legal protection for overseas investors is favourable in Germany and Europe in general.

In addition, Buffet told Handelsblatt newspaper in an interview earlier this week that the market in Germany now looks very attractive largely because of its population dynamics as well as an increasing purchasing power amongst its population. Perhaps importantly, the stronger US dollar has allowed for the acquisition to proceed for a substantially lower price tag.

Exuding confidence over the latest acquisition, Buffett said, “There is nothing like a deal to get people’s attention. This is smaller than (we) would normally do, but it is a door opener. I like the fact that we have cracked the code in Germany”.

Extension of Berkshire’s Automotive Push
It should be noted that the DLMV acquisition appears to be an expansion of Buffett’s romance with the automotive industry. Back in October 2014, Buffett’s Berkshire Hathaway acquired the Van Tuyl group’s dealerships for an estimated US$4 billion. The acquisition then was touted as the biggest acquisition by far in automotive retail history.

Source: FactSet Fundamentals, chart comparing Berkshire Hathaway Class B shares (Blue) with the S&P 500 index (Green)

We note that in the aftermath of the Van Tuyl acquisition, Berkshire Hathaway’s Class B shares has grown over 8.5 percent to its recent close of about US$148 (1 October 2014 close of $136.62). The stock is currently still outperforming its oft-used benchmark, the S&P 500 as can be seen in the chart above. It is little wonder that analysts have given Berkshire BUY calls even though the stock is currently near multi-year highs.

Source: FactSet Fundamentals

The addition of DLMV to Buffett’s portfolio thus seems like a logical one and could mark the next step in Buffett’s push into Europe and the automotive industry as a whole.

Big Money Flowing Into Europe? Should You Too?
Apart from Warren Buffett, George Soros and Robert Shiller are also successful investors that are moving their funds from the US to parts of Europe. This comes at a time when the Euro has fallen more than against the Dollar over the past year.

Should retail investors follow big money? Certainly, retail investors will find it hard to fork out 400 million Euros for a company. Perhaps what retail investors can do is to invest in European ETFs. In a separate article written by Zacks Research, the research house recommends three specific ETFs that are likely to “continue leading the European space in the months ahead.”

These three ETFs are:

  1. WisdomTree Europe Hedged Equity Index Fund
  2. iShares MSCI EMU Index Fund
  3. iShares Currency Hedged MSCI Germany ETF
With a Communications background, Vance has the passion to write with a purpose - to provide content supported with substantial evidence to vested readers.

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