FOOLISH FOUR PORTFOLIO

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Foreign Policy Decisions
Covering the world with the
"Nifty Nine."

By Ethan Haskel (TMF Cormend)

BALTIMORE, MD (August 11, 1999) -- My family and I returned recently from a wonderful vacation in Paris, the city otherwise known as the "land of the endless pastry." The trip served as a timely reminder that there's a whole world out there quite different from that of hot dogs, apple pies, and sport utility vehicles. The French lifestyle of two hour lunch breaks, slow food, and month-long summer holidays brings a welcome, fresh perspective.

The trip served also as a reminder that there is a whole world of investment opportunities outside the United States that we shouldn't ignore. Sure, the American economy is currently on fire, pacing the global equities markets this decade. But maybe other corners of the world, slumbering recently, have the potential for higher future growth and will awaken just as the U.S. stumbles.

It seems to make sense to have some exposure to the opportunities present in international markets. But how best to accomplish this goal? Should we buy a diversified handful of foreign stocks that are listed on U.S. exchanges, available through American depository receipts? What about mutual funds whose managers roam the globe, searching for the best situations? Or, why not try out those single-country closed-end mutual funds that trade on the New York Stock Exchange, often at significant discounts? Decisions, decisions....

Relax, fellow Fools. To bring some international flavor to our portfolios, we need look no further than the Foolish Four or the Beating the S&P (BSP) stocks. In last week's list of the top 10 reasons to invest in BSP, reason number 5 suggested that the huge, multinational companies in which BSP invests might provide all the global exposure anyone needs.

How much international diversification do these companies provide? To investigate, I compiled a list of all nine stocks comprising the Foolish Four and BSP portfolios. (For the BSP, these represent the stocks chosen as of January 1 this year. The Foolish Four stocks are those in the Fool's real money portfolio, chosen about a week before the start of the year.) The following table shows the percentage of total sales revenue for each company, categorized by geographical region.

Stock                         USA   Europe   Asia  Other* 
Bank of America (NYSE: BAC)    81      7     8        4
Campbell Soup (NYSE: CPB)      67     15     N/A     18
Caterpillar (NYSE: CAT)        49     14     14      23
Ford Motor (NYSE: F)           69     18     N/A     13
International Paper (NYSE: IP) 76     N/A    N/A     24
J.P. Morgan (NYSE: JPM)        52     28     11       9
Kimberly-Clark (NYSE: KMB)     51     17     N/A     32
Minnesota Mining (NYSE: MMM)   47     26     18      10
Schlumberger (NYSE: SLB)       25     29     N/A     46

* Unspecified
Please note that these numbers should be taken with a grain of salt -- actually, an entire shaker of salt! Most were compiled from 1997 financial figures (courtesy of the 1999 Hoover's Handbook), but in some cases the data were missing. I filled in some of the rest from 1998 financial reports (Kimberly-Clark and International Paper) but also resorted to 1996 data for 3M and did a minor extrapolation for the Kimberly-Clark data. The point here is not to come up with accurate, up-to-the-minute numbers (which I found surprisingly difficult to track down), but rather to provide some semi-quantitative numbers for demonstration purposes.

Methodological flaws notwithstanding, our "Nifty Nine" companies averaged a relatively modest 57% of their sales from inside the United States. The best estimates that I could find indicate that, in terms of market capitalization, American equities markets currently comprise about 40%-45% of the world total. Our stocks seem to have taken a page out of the paint company Sherwin-Williams' (NYSE: SHW) motto book -- we truly do "Cover the World."

Stated conversely, our "Nifty Nine" earn about 43% of their sales from outside American soil. Recently, it's been the relatively slow growth of these "foreign" economies that has retarded the profits of some these "dogs," making them ripe for a turnaround as conditions improve. Perhaps more than we realize, investing in such "American" corporations gives us direct, significant stakes in the well-being of all global markets.

So whether we chomp down on Big Macs in Pittsburgh as we dash out to our Tai Chi lesson, or sit for hours at the local cafe in Auvers watching the world go by and nursing our cappuccino, one thing's for certain -- Vive la difference!

[Editor's Note: Following are the returns of a "paper" Beating the S&P portfolio that Ethan has been reporting on in the Foolish Workshop for many months. The stocks were selected December 31, 1998 and "purchased" in equal dollar amounts to be "held" for one year. To see a list of stocks for portfolios starting now, see Today's Stock Lists.]

Beating the S&P year-to-date returns (as of 08-10-99):
Schlumberger (NYSE: SLB)          +43.9%
Kimberly-Clark (NYSE: KMB)         +8.1%
Campbell Soup (NYSE: CPB)         -18.2%
Ford Motor Co.  (NYSE: F)         -18.6%
Bank of America  (NYSE: BAC)       +1.7%
Beating the S&P                    +3.4%
Standard & Poor's 500 Index        +8.1%

Compound Annual Growth Rate from 1-2-87:
Beating the S&P                   +19.9%
S&P 500                           +17.3%

$10,000 invested on 1-2-87 now equals:
Beating the S&P                  $98,600
S&P 500                          $74,600

Today's Stock Lists | 1999 Dow Returns

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08/11/99 Close
Stock  Change   Last
--------------------
CAT  +   3/8   59.25
JPM  +4  3/4   126.69
MMM  +1  5/8   96.88
IP   +2  1/16  52.56






                  Day    Month   Year   History
        FOOL-4   +2.38%   3.28%  26.94%  28.83%
        DJIA     +1.24%   1.24%  18.28%  17.81%
        S&P 500  +1.60%  -2.02%   6.49%   6.75%
        NASDAQ   +3.01%  -2.79%  16.98%  18.58%

    Rec'd   #  Security     In At       Now    Change

 12/24/98   24 Caterpillar   43.08     59.25    37.53%
 12/24/98   14 3M            73.57     96.88    31.68%
 12/24/98   22 Int'l Paper   43.55     52.56    20.69%
 12/24/98    9 JP Morgan    105.51    126.69    20.07%


    Rec'd   #  Security     In At     Value    Change

 12/24/98   24 Caterpillar 1034.00   1422.00   $388.00
 12/24/98   14 3M          1030.00   1356.25   $326.25
 12/24/98   22 Int'l Paper  958.12   1156.38   $198.26
 12/24/98    9 JP Morgan    949.62   1140.19   $190.57

              Dividends Received      $49.99
                             Cash     $28.26
                            TOTAL   $5153.06