ADR's Get Trashed (by JR, of course):
If you're negative on a company, short the ADR. If you're positive on the company, you buy the stock. ADRs are a fraud.
ADRs were developed in 1927 by J.P. Morgan. The reason why they were developed in 1927 is because if I wanted to buy ICI,
for example, I would have write a check, put it on a boat, send it to London, the check had to get cashed, then buy the shares, put
the shares back on a boat and send them back over here. This was 1927 and transportation and communications were relatively
primitive. So ADRs were a brilliant idea. We can do it all right here and we'll have the receipts in the basement at J.P. Morgan
saying that we guarantee that the shares are on deposit in the UK, saving us all a lot of time, energy and aggravation. Okay, well
that was 1927, this is 1995 and everything is done electronically now. There's instant currency transfers, instant share registers --
everything is done by computer now, nobody sends shares back and forth. Euroclear has been in business for 15 or 20 years.
Now there are some American banks making a fortune off these things and that's why they try to convince the American public
that they have to buy ADRs. American investment bankers convince the foreign companies that they have to buy ADRs -- this is
how they lock-up the market. They go to Daimler and say "look, you've gotta' buy the ADRs or Americans won't buy them."
Every time you buy an ADR there's a little extra commission in it for somebody; every time you collect a dividend from an ADR,
there's an extra commission for someone. If you look at some of the Dollar returns you get from your ADR dividends, I've seen
them cut as much as 40% in the difference the company actually pays if you use the proper exchange rate in Dollars for the poor,
unsuspecting American public. That's A. Secondly, if there so necessary, why don't Japanese investors have JDRs to invest in
Germany? Why don't Australian investors have British Depositary Receipts? The French don't buy French DRs, they buy
Daimler-Benz directly. Everybody in the world gets along just fine without these things, except the Americans. And that is
because everybody else understands -- they just go and buy the stock. Now let me just keep going, because there are other
reasons for avoiding ADRs. Liquidity. If you own ADRs, you can only sell them in New York. But if I own Volkswagen, I
can sell it in London, Frankfurt, Tokyo or anywhere else, unless I just happen to own the ADR. The ADR you can only sell in
New York. I have much less liquidity and I can only sell when the New York Stock Exchange is open. Last February on
President's Day when the NYSE was closed, a lot of people wanted to sell Mexico, but they couldn't because they owned
Mexican ADRs. But if you had owned the real shares, you could have sold in London or in Mexico City. So you have much less
liquidity just because of the nature of the beast and more importantly, there are only a certain number of ADRs available. I don't
know how many shares Daimler, for example, has outstanding, but I assure you that only a very small percentage of the
capitalization is in the form of ADRs. So, there are a lot of reasons for avoiding ADRs unless you're a short-seller. If you're a
short-seller then you've got that premium going for you -- and it's a small premium, but every time it trades there's less liquidity.
And when there is a bear market in some of these things, the people who own the ADRs just won't have them. But in Frankfurt
they might say, "well Daimler isn't going to go away, I'll step in and buy in the panic." Americans aren't going to do that -- they're
all going to flock out together. The point is that there isn't nearly anywhere as much liquidity in New York as there is in Frankfurt.
If Fidelity starts selling the Daimler ADR, so will Dreyfus and another 63 U.S. mutual fund managers. German managers are just
as likely to follow the "herd" and sell, too, but it is far more likely that you'll see a squall in the U.S. If you have a squall in the
U.S., the 63 managers who own it are going to sell, but if you have that same squall in Germany, 63 managers may sell, but there
will be another 63 managers who will step in to buy. Somebody will step in to buy because Daimler is not going away. |
