Dueling Fools

Dueling Fools
Globe Trotting Duel
March 3, 1999

Foreign Investing Bull's Pen
by Rick Munarriz (tmfedible@aol.com)

No mas. I concede defeat. I know, I know, it's a bit early to yield an "uncle" to Uncle Sam, but the truth is that, if anything, Selena's pending case for keeping your portfolio flying domestic probably won't go far enough. There are fifty states out there and that is really way too many to monitor. You should empty out your stock pool to the point where you are only wading in those that are based out of your home state. If you happen to live in a wide state then do your legwork a favor and stick to only those within a fifty mile radius of your home.

Why not? You do have a distinct advantage in tracking your community stocks over those that live on the other side of the city limits. You get local media coverage. You might even know an employee or two. Sure, you'll miss out on that hot Internet stock a few time zones away or that budding biotech upstart on the wrong coast, but if opportunity knocks you want to live close enough to be able to answer, right? So, giving it some more thought, even fifty miles may be too ambitious. Only invest in companies that are headquartered on the very block you live in.

Huh? That doesn't sound right at all. Let me pull down that white flag. Setting up force fields over any border, be it city, state, or country, is nonsensical. Having honed that Foolish sense for picking up Rule Breakers and Rule Makers, why settle for barriers?

If you were going to assemble a world-class athletic team, in a sport like hockey or soccer or baseball, would you limit your recruitment to just one country? Of course not. There is no country that has a monopoly on talent. The quarterly global update in, cough, cough, Barron's, will show you that the biggest winners are rarely U.S. companies. If you want to seek out the best then that quest does not end where your passport stamps begin.

Let's put it this way. If I told you about a company trading at a lower multiple than one you were presently looking at, but with a higher projected growth rate, would you be interested? Possibly? All around the world there are economies growing much faster than ours with companies trading at a fraction of U.S. earning multiples. Opportunity is not always wrapped in red, white, and blue. Sometimes? Sure. Always? Please. There are no absolutes.

Stateside Fools, imagine a world with no Microsoft (Nasdaq: MSFT), America Online (NYSE: AOL), and Amazon.com (Nasdaq: AMZN). Those are the restrictive shackles you are imposing on investors abroad if they were to stick to their own home cooking. By the same token, domestic market jockeys would do without high tech innovators like Germany's SAP or worldwide power brands like L'Oreal and Adidas. Did you miss out on Japanese automakers in the early 1980's? What about telecommunication companies a decade later in emerging countries where there was just one telephone for every twenty or thirty households?

Now, history has proven that there is no country that consistently outperforms the rest of the world in terms of equity performance. With those who fly the farthest eventually crashing the hardest, wouldn't it be comforting to have a little geographical diversity after the great domestic bull run we have experienced? And, no, that doesn't mean buying up a company like Coca-Cola (NYSE: KO) or McDonald's (NYSE: MCD) with substantial international exposure. No matter how multinational in scope, equities are rarely immune to bear markets back home. Just ask a company like Sony (NYSE: SNE), whose shares fetch exactly what they did ten years ago despite its growing American presence. Market divestiture is more about balancing the ebb and flow of local market perception than canvassing the globe exclusively in theory.

So where does that leave you? You've piled up those eggs pretty high over the years. Is that your only basket?

Balance is a back-tested winner. The wide industry range of an index fund has outperformed the often concentrated efforts of money managers. If that validates sector diversification, how far can the merits of geographical diversification lie?

No barriers. That is what it all boils down to. It's all about setting aside the pompous and erroneous notion that the best investments ideas will only grow in your own backyard. If you do believe that, my what a deluded garden you have grown. It just doesn't happen that way. If you are blinded by fiscal bigotry, then do yourself a favor and get a new pair of shades. No barriers is the way.

No barriers. No excuses. What is holding you back? The fear of getting burned by a company cooking its books medium rare? That happens both here and abroad. Is it the lack of financial reporting in the first place? In some underdeveloped markets that is certainly true, but as the information age catches up with the rest of the world that will obviously change. And, let's hope that these countries do not embrace our litigant ways to the point that these companies become tightlipped with the individual investor community.

For those of you who still feel that the rest of the world is a beautiful place to visit but you wouldn't want to invest there, what more can I say? The same entrepreneurial tire kicking spirit that turned early channel checks into a mint on Iomega (NYSE: IOM) was probably ablaze when Nintendo arrived on the video game console scene or when some Israeli high-tech company rose into prominence. Culture and water are often the only things that get in the way. Don't let that serve as a virtual barricade to expanding your portfolio's possibilities.