Investors, The Best Foreign Stocks Are Right Here at Home
Companies / Investing 2010 Sep 19, 2010 - 10:55 AM GMTBy: DailyWealth
Dan Ferris writes: China, India, and Brazil were poor, "Third World" countries not long ago.
Today, they're making investors rich.
India's Sensex index has risen 20%, just since last November. And the iShares MSCI Brazil fund is up more than 100% since early 2009. The China Shanghai index rose from 1,100 to 5,900 in just two years, 2005 to 2007. That's more than five times your money.
There's definitely money to be made in growing foreign markets.
But you should be very, very careful about betting on a whole country's stock market. In this essay, I'll show you a much safer way to profit over the long term from these hyper-growth situations, rather than blindly buying hot foreign "story stocks," like most folks do.
Stock markets that shoot up quickly can, and usually do, fall just as quickly. Buying a whole stock market isn't really investing, anyway. You're just betting on the direction of a whole country's stocks – and there's no way one person can know enough to invest in every one of those stocks. It's not really investing. It's more like gambling.
But it's still a good idea to invest in foreign stocks.
You don't want all your investments in one country. If the U.S. economy continues to suffer, all of your investments could suffer, too. It's better to spread your money around, so you can take advantage of good things happening in other countries.
Fortunately, it's easy to make safe, liquid investments in foreign countries. It's just as easy as investing in the U.S. You don't have to open a special account or deal with a foreign broker. You don't have to worry about foreign laws or taxes. Here's why...
Some of the world's biggest, safest, most profitable businesses get more than half their sales from outside the United States.
They're the easiest and best foreign investments you can make. Here are five companies from a list of elite companies I follow...
| Company | % of sales outside the U.S. |
| Colgate-Palmolive (CL) | 75% |
| Coca-Cola (KO) | 74% |
| McDonald's (MCD) | 65% |
| Procter & Gamble (PG) | 62% |
| 3M (MMM) | 63% |
You can invest in foreign markets and still get the peace of mind of buying safe blue-chip stocks. When the market crashed in 2008, investors in stocks like these had nothing to worry about. They made a safe 6% return on McDonald's... even though the stock market fell almost 40% by the end of the year.
Now that you know McDonald's gets 65% of its sales outside the U.S., won't you sleep better as a McDonald's shareholder, even if the U.S. dollar gets worse? Foreigners will be able to buy more McDonald's products, and McDonald's loyal customers and strong brand name will allow it to raise prices in the U.S. to adjust for a weaker currency.
When you buy great companies with high foreign sales, you often get a growing stream of dividends, too. Procter & Gamble has raised its dividend every year for 56 years in a row. Colgate-Palmolive's dividend has increased more than 11% per year over the last 10 years.
It can be complicated and difficult to buy stocks in foreign markets. You and I aren't allowed to invest in stocks in India, for example. We have to go through complicated and expensive legal procedures to do it. Other countries have all kinds of taxes. A subscriber recently wrote to me and said there's a 25% withholding tax on some of his foreign stocks, even in his IRA. His broker says there's nothing he can do about it.
There's little need to invest in foreign stocks. It's much easier to stick to the best-quality U.S.-traded stocks – and find the ones that have more than half their sales outside the U.S.
If you know nothing else about investing in foreign stocks except this simple, powerful idea, you'll outperform 99% of investors who spend their time trying to find the next hot foreign stocks.
Good investing,
Dan Ferris
Editor's note: Dan Ferris writes the monthly Extreme Value, focusing on stocks trading at huge discounts to their true values. His strategy of selecting safe and cheap stocks has earned him one of the most impressive track records in the industry. To learn more about a trial subscription, click here.
The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.
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