On today’s show we are talking about buying the dip. This is when the market is inefficient and people over-react to a piece of news.
These events are clear when they happen, and yet they still do occur regardless.
These market over-reactions happen with striking regularity. We see it also in foreign currency exchange.
The Canadian dollar fell to a 22 year low only a few weeks ago based on the assumption that tariffs imposed by the White House would crush the Canadian economy. The Canadian dollar has recovered about 2 cents in the last few days, but is still 4 cents below where it was in the fall.
We know that there is opportunity in many real estate markets. But if you can find a 4%, or a 6% discount on the buy side by speculating on the added leverage of the foreign exchange, this can be an opportunity to make an outsized return on your investment.
We have Canadian investors who invest in our US projects and we have US investors who invest in our Canadian projects. Foreign exchange doesn’t really enter into the thesis for any of these investments.
To be clear, there is a difference between investing and speculating. When you make an investment in a new apartment building, you’re probably basing your investment on the fundamentals of the local submarket, the product being delivered to meet a market need, and the strength of the team operating the project.
Foreign exchange in the future is unknown. It could result in a foreign exchange gain or a foreign exchange loss 5 or 7 years down the road when you might be planning to exit the investment. But if you have the dollar drop 5% in a very short time period, and the investment thesis was making sense, the risk just tipped in favor of the investor. The investment is now 5% cheaper, all other things being equal when you take the change in exchange rate into account.
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