Dueling Fools

Dueling Fools
Globe Trotting Duel
March 3, 1999

Foreign Investing Bear's Den
by Selena Maranjian (tmfselena@aol.com)

"Humour is the first of the gifts to perish in a foreign tongue."
-- Virginia Woolf

How true. I speak Armenian and can converse well enough in it. But I can't read capital letters or typing in Armenian. And I can't understand Armenians who speak with a lot of "high-falootin'" five-syllable words. Park me in a foreign country and I'll probably find much to explore, admire, photograph and ponder. But it's unlikely that I'll ever be able really and truly to understand the culture, inside out. Perhaps after several years I'll understand it very well, but not completely.

So when I think of investing in foreign companies, I stop short of doing so. After all, to really understand a company, you need to digest more than just its numbers. You should have a good handle on a company's business model and growth prospects. For this, you need to understand the condition of the local economy. And you should be very familiar with the company's competitors. (Hard to do when you live thousands of miles away and you don't even know who the competitors are.) Do you know how enthusiastically the company's products or services are being received? A company's new product might seem like a slam-dunk winner to you, but without understanding the local mindset, you might make a regrettable investment.

Even financial numbers are in a different language abroad -- generally accepted accounting principles (GAAP) are not universally standard across the globe. While a company might report modest profits on its American income statement, if it operated in a foreign country, local accounting practices might result in its profits appearing much stronger.

In addition, you'll be hard-pressed to find countries with securities regulations more beneficial to the investor than the good old U.S.A. Our friends at the Securities and Exchange Commission (SEC) require publicly traded companies to report on their earnings and financial condition every three months. Offerings of stock must be accompanied by detailed prospectuses. Laws require companies to share material information equally with all investors. By contrast, the U.K. and many other countries require companies to report on earnings just twice a year. Would you really want to wait six whole months to find out how your company is doing? Many countries have even less appetizing requirements. We've got it pretty darn good here in America. Why go looking to invest elsewhere?

"The whole object of travel is not to set foot on foreign land;
it is at last to set foot on one's own country as a foreign land."
-- G. K. Chesterton

Why, indeed, should we leave our borders to invest abroad when we can really do so without leaving home? You really can have your cake and eat it too in this area. Enjoy the wealth of information available to investors in American companies and still profit from global enterprise. You can do this by investing in the many large American companies that do substantial business abroad. Coca-Cola, for example, generated only 34% of its 1997 revenues in North America. Consider also the following companies. I've listed the percent of sales generated outside the U.S. in their most recent fiscal year (per Hoover's company info site).

   Johnson & Johnson   48%
   McDonald's          60%
   Mobil               57%
   IBM                 58%
   Procter & Gamble    50%
   Gillette            63%
   Tupperware          87%
   Xerox               49%

Does any of this surprise you? The companies we've known for most, if not all, of our lives have quietly been spreading their reach across the planet. Tupperware is sold (yes, frequently via home parties) in more than 100 countries. McDonald's 24,000-some restaurants can be found in more than 110 countries. Mobil's operations are located in more than 140 countries.

People around the world are generally eager to use American products. And as more and more nations develop, more people will rise to middle-class ranks and will be happily chomping on Big Macs, filling their gas tanks with Exxon gas, shopping at the new local Wal-Mart, and shaving with Gillette razors. (Gillette sells its products in more than 200 countries.)

By all means, travel abroad for the sheer fun of it. But keep your investing close to home. You and I are probably not international experts, nor will we ever be. But if we invest in American companies doing business abroad, we can be sure that they've got people extremely familiar with local conditions at the helm of each outpost.

Resist the yen to invest in foreign companies.

"Without stirring abroad,
One can know the whole world;
Without looking out of the window
One can see the way of heaven.
The further one goes
The less one knows."
-- Lao-Tzu