The Easiest Money in the Market

Making money in the stock market usually takes a lot of hard work and patience. Not so, my returns toward the end of last summer. That was easy money -- too easy. Around the middle of August 2007, Mr. Market's mania sent lots of stocks down the tubes, especially the foreign companies I love. I went shopping.

Nine weeks later, my average return on those investments was much better than 35%.

The biggest and the best
Keep in mind, I wasn't dabbling in overly speculative stuff here. As crazy as it got for me was purchases of China Mobile or Motley Fool Global Gains recommendation Grupo Aeroportuario del Centro Norte, known as OMA. In fact, you didn't have to shop for small-cap beta-bait to earn major money over the last four and a half months. Even sleepy giant HDFC Bank tacked on more than 60% over that period.

Here's what's more amazing: My performance paled next to the gains posted over those 18 weeks by other big, well-known foreign companies trading on U.S. exchanges. Moving the end date forward to this month, we still see some huge moves, despite weeks of market turmoil.

Foreign Company

Return, August 2007 to present

Turkcell (NYSE:TKC)

                         63.8%

Silver Wheaton (NYSE:SLW)

                         60.8%

GigaMedia (NASDAQ:GIGM)

                         60.6%

Votorantim Celulose e Papel (NYSE:VCP)

                         60.5%

China Medical Technologies (NASDAQ:CMED)

                         58.6%

Millicom International Cellular (NASDAQ:MICC)

                         58.2%

Research In Motion

                         78.2%

Screening and data from Capital I.Q.

The market's been pretty volatile lately, but the more things change, the more they've stayed the same. A couple of months back, I first ran a screen to take a look at the biggest foreign winners since mid-August (all greater than $250 million in market cap, all trading on major U.S. exchanges). I was pretty surprised by what I found when I looked at the aggregate numbers. Big winners in foreign stocks were running way ahead of winners in U.S. stocks. And that trend has continued through today.

U.S.

Foreign

Gain >15%

16.8%

26.9%

Gain >20%

13.4%

22.5%

Gain >30%

7.9%

16.0%

Companies with market cap >$250 million, all trading on major U.S. exchanges.
Screening and data from Capital IQ.

More than 160 foreign-based companies -- better than 25% of the total -- had posted gains of 15% or better. That's dozens of foreign companies that gave investors a year's worth of market-beating gains in just over a month.

Legends of the fall
Figuring out exactly why foreign stocks outperformed U.S. stocks isn't easy. Personally, I look to that big August swoon. While overall markets were tanking, a lot of foreign issues I track were taking it on the chin much worse than they deserved. The ones I bought looked to be trading at 20% to 25% discounts. All they had to do to show great returns was claw their way back.

The subsequent rebound was both faster and bigger than I expected, and I think we owe that to the Federal Reserve. As I and my colleague Bill Mann have observed, those falling interest rates in the U.S. have prompted investors to reevaluate the long-term fate of the greenback. And for right now, they seem to agree that it will continue to wither, meaning investment in foreign cash flows and global commodity producers makes an awful lot of sense. The high price of oil has also conspired to keep foreign petroleum producers, as well as hot, alternative-energy stocks, on the run.

Finally, there is a continuing belief that the world economy is "decoupling" from what's happening in the U.S. This argument is often overstated; markets tend to move together. However, despite the important ties between our economy and those overseas, the world has changed, and a hiccup in the U.S. need not send linked economies into a harrowing tailspin anymore.

Foolish bottom line
Don't read too much into those numbers. Profits are rarely this fast or easy, and no one should invest hoping for that kind of quick return. The stocks above could give those gains back in an instant, because, in the short term, anything's possible.

But I firmly believe these recent returns teach us a lesson about long-term value: It's never a mistake to buy the best at great discounts, and if the bargains are overseas, that's where you should invest. As other world economies take on greater importance, global investing should be a part of everyone's portfolio, even those who don't think the dollar is doomed.

So keep your shopping list full, and don't be afraid to take advantage of Mr. Market's next easy-money holidays. If you could use a few new foreign ideas, my colleagues at Motley Fool Global Gains serve them up, two a month.

They'd be happy to let you try out the service for free.

This article was first published Sept. 25, 2007. It has been updated.

At the time of publication, Seth Jayson, a top-rated CAPS player, had shares of OMA and GigaMedia, but no positions in any other company mentioned here. He is co-advisor at Motley Fool Hidden Gems. View his stock holdings and Fool profile here. Turkcell, GigaMedia, and OMA are recommendations of Global Gains. Fool rules are here.


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