Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Why You Must Own International Stocks

It wasn't long ago that I said American investors didn't need to invest abroad. After all, the United States is the most diverse economy on the planet, the driver of global growth, and the country with -- by and large -- the best shareholder protection framework. You could (and can) get a ton of international exposure by holding U.S.-based companies such as Yum! Brands (NYSE: YUM  ) and ExxonMobil (NYSE: XOM  ) .

I wrote these words. I believe them to be true. So why did I sign on to be the advisor for The Motley Fool's international investing service, Global Gains?

Because my own investing track record would be dramatically poorer had I not made the choice from the beginning of my investing career to comb foreign markets for great investing ideas. No, you don't need to invest abroad. But I firmly believe that everyone should own at least one international stock.

But Bill, isn't foreign investing risky?
After all, that's the message we get from the weathervanes on financial television. One person will say, "I am taking my allocation in international up to 30%," and another will say, "Wow! That's really aggressive!" The implication is that the more money one allocates outside the United States, the higher the absolute risk level.

What utter rot.

The thought that BHP Billiton (NYSE: BHP  ) is riskier than FuelCell Energy (Nasdaq: FCEL  ) just because the former is based in Melbourne rather than Connecticut is absurd. BHP generates billions in free cash flow each year, while FuelCell hasn't generated positive free cash flow since 1998.

As a group, international stocks are no more risky than U.S. stocks. Foreign companies offer substantial diversity in the same exact way that U.S. companies do, from the massive cash flow-rich Vodafone (NYSE: VOD  ) and China Life Insurance (NYSE: LFC  ) to the surging VimpelCom (NYSE: VIP  ) .

In fact, they may be less risky. Over the past five years, people who invested heavily around the world have seen a powerful benefit from diversification as the U.S. dollar has dropped in value against nearly every major currency. That means earnings denominated in pounds, dinars, rupees, or won are worth more for people who invest in dollars.

The fact that so many money managers pooh-pooh foreign investing as being "riskier" is the exact reason why you should look there. Think about it: The foreign markets in aggregate exceed the size of all U.S. stocks, yet a 25% allocation to foreign stocks is considered "aggressive." Hmmmmm. Sounds to me as though most investors underallocate to foreign companies. I'd be perfectly comfortable putting 100% of my money abroad. If anything, the types of industries available are more diverse than what's available in the United States.

Yes, it is risky -- but probably less than you think
All investing has an element of risk to it. But the U.S. market has underperformed many international markets for the better part of this decade, for the very reason that capital invested in China, India, even Brazil has generated higher returns. I don't expect this condition to reverse itself long term, and with the recent savaging of markets around the globe, we're seeing some pretty intriguing bargains from Taiwan to Finland to Canada.

The Foolish bottom line
At Global Gains, we focus on finding great international businesses offered at prices that underestimate potential gains. We don't seek out the hot markets, or the sizzling industries -- we're not going to get caught up in the next ethanol rage, for example. We seek foreign companies with excellent prospects for long-term profitability, and we try to buy them at a good to great price.

To date, our results are promising: We're beating every benchmark that we track ourselves against. I encourage you to join Global Gains free for 30 days, take a look at the stocks we're recommending, and consider adding some of them to your portfolio.

But even if you don't join us, I do hope you will take it upon yourself to stop being afraid of foreign stocks. Most of the world's biggest gains will come from companies beyond our shores -- it would be a pity to miss them because the talking heads tell you to set your sights closer to home.

This article was first published Feb. 19, 2008. It has been updated.

Bill Mann's impression of Matthew McConaughey does not involve taking his shirt off, and we can all be thankful for that. Bill does not own shares in any company mentioned in this article. The Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 647888, ~/Articles/ArticleHandler.aspx, 10/25/2016 6:31:26 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 9 hours ago Sponsored by:
DOW 18,223.03 77.32 0.43%
S&P 500 2,151.33 10.17 0.47%
NASD 5,309.83 52.43 1.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/24/2016 4:02 PM
BHP $34.97 Up +0.01 +0.03%
BHP Billiton CAPS Rating: ***
FCEL $5.20 Up +0.10 +1.96%
FuelCell Energy CAPS Rating: *
LFC $12.94 Down -0.01 -0.08%
China Life Insuran… CAPS Rating: **
VIP $3.14 Down -0.07 -2.18%
Vimpel-Communicati… CAPS Rating: ****
VOD $27.67 Down -0.10 -0.36%
Vodafone CAPS Rating: ****
XOM $86.91 Up +0.29 +0.33%
ExxonMobil CAPS Rating: ****
YUM $87.80 Up +0.83 +0.95%
Yum! Brands CAPS Rating: ****