Don't Blow This Next Opportunity

Chances are you weren't happy with your investment returns this decade. That's because -- as The Wall Street Journal reported this week -- this has been the worst-performing decade in the history of the stock market.

Stocks in the aughts averaged an inflation-adjusted 3.3% annual decline, with widely owned stocks such as Microsoft (Nasdaq: MSFT  ) , Electronic Arts (Nasdaq: ERTS  ) , Intel (Nasdaq: INTC  ) , Qualcomm (Nasdaq: QCOM  ) , and Ford (NYSE: F  ) having done even worse than that.

That's bad, but there is a bright side. If you know your stock market history, then you know that just as periods of outperformance are often followed by periods of underperformance (the 1990s was one of the market's best decades), periods of underperformance are often followed by periods of outperformance.

In other words, the next 10 years are likely to be far better than the last.

Don't blow this opportunity
That's the tailwind that will benefit our returns for the next 10 years. And if we play our cards right by taking a long-term view, regularly adding new money to the market, minimizing taxes and transaction costs, reinvesting dividends, and focusing on superior companies, we should be able to look back at the end of 2019 and say that we had a pretty good decade, investing-wise.

But -- and this is important -- if you want to make the next 10 years one of the best investing decades of your life, you might heed the advice of one of the world's top investors and consider a minor strategic shift.

Did you know ...
Before I can talk about that shift, I need to ask: Do you remember Oct. 29?

It was a joyous day! The stock market rallied on the news that U.S. GDP had grown 3.5% in the third quarter -- news that ostensibly marked the end of our 18-month-long recession.

Yet it turns out that the news is not as good as originally broadcast. The Commerce Department recently revised its third quarter GDP growth estimate down to 2.2%. Net out the 1.66% bump the number got from the government's ill-conceived and unsustainable Cash for Clunkers program, and it now looks like our economy in the third quarter really didn't grow that much at all.

Are you too U.S.-centric?
Let's tie these two stories together. Why did U.S. investors like us suffer such disappointing returns this past decade? It's because we didn't adjust our investment philosophies to account for a dramatically different world.

The plain fact is that U.S. economic growth has slowed and as the revisions to the third-quarter GDP growth number reveal, shows limited signs of life. At the same time, however, India and China put up third-quarter GDP growth of 7.9% and 8.9%, respectively. Yes, those economies also benefited from public sector stimulus, but the difference between their numbers and our own is so stark that one can't help but acknowledge their rosier forward economic outlooks.

Fast-forward a few years and this is going to lead to what PIMCO co-chief investment officer Mohammed El-Erian calls a "multipolar world" -- one that is no longer reliant on the U.S. economy to drive growth. This, he told Fortune, is no doubt good for the globe. "Most of us would rather be on a plane with multiple engines," he pointed out.

Yet if you, as an American investor, continue to focus on American stocks -- and American investors are far too exposed to American stocks -- your investment returns over the next decade may end up being as disappointing as those of the past decade. This, El-Erian points out, is the consequence of being "too U.S.-centric in a globalizing world where the center of gravity is shifting."

Do something about it
This is a real and significant risk that all American investors are facing today, but this is where the aforementioned minor strategic shift comes in. El-Erian says that all you have to do is "recognize that the asset allocation of tomorrow is much more global than the asset allocation of yesterday."

Or in plain English: Set aside some time and money this year to buy more foreign stocks.

I know, I know ...
Despite the surging popularity of emerging-markets investments, many Americans remain hesitant to own foreign stocks. That's because they don't know these companies and may not feel comfortable evaluating their financial statements or market opportunities.

That’s an understandable objection -- but it still shouldn’t lead you to blow this opportunity. So let me give you a head start by telling you about one of the stocks we recently named a Best Buy Now at our Motley Fool Global Gains international research service.

Get your pad and paper ready
The company is Embotelladora Andina (NYSE: AKO-A  ) , one of the world's largest Coca-Cola (NYSE: KO  ) bottlers, with exclusive territory in Chile, Brazil, and Argentina. The stock is cheap at 7 times EBITDA, pays a healthy 5% dividend, is one of the most profitable Coke bottlers on the planet, and stands to benefit from consumer spending growth in Chile and Brazil.

Given Andina's long operating history, steady cash flows, and stable relationship with Coca-Cola, this is a relatively low-risk way to gain much-needed exposure to some of the world's fastest-growing economies -- a savvy way to play both offense and defense.

But once you buy Andina, you won't want to stop there. Your portfolio needs exposure to Europe, China, Japan, India, and more. So if you'd like further insights into our other Best Buys Now around the world, simply sign up to get all of our Global Gains research free for 30 days. Click here to get started -- there's no obligation to subscribe.

Tim Hanson is co-advisor of Motley Fool Global Gains. He does not own shares of any company mentioned. Intel, Coca-Cola, and Microsoft are Motley Fool Inside Value recommendations. Electronic Arts and Ford are Stock Advisor picks. Embotelladora Andina A. is a Global Gains selection. Coca-Cola is an Income Investor pick. Motley Fool Options has recommended a buy calls position on Intel and a diagonal call position on Microsoft. Don't blow your chance to read the Fool's disclosure policy.


Read/Post Comments (8) | Recommend This Article (33)

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.

  • Report this Comment On January 30, 2010, at 1:35 AM, lasvegaslf wrote:

    The world is too small nowadays for the USA to hold its old position as leader . Nor should we have to bear those economic responsibilities, they should be shared with other top global powers.

    If other nations can become wealthy also, fine! But with that wealth comes an enormous amount of responsibility. I hope other nations will be half as kind as we have tried to be over the many years.

    lasvegaslf

  • Report this Comment On January 30, 2010, at 2:31 AM, bluebare wrote:

    I like it. Thank you.

  • Report this Comment On January 30, 2010, at 2:34 AM, bluebare wrote:

    P.S. Are you following NETC too?

  • Report this Comment On January 31, 2010, at 1:36 AM, 1sweet1 wrote:

    I got a dividend rate of 1.5%, same as Yahoo. How did you get 5%

  • Report this Comment On January 31, 2010, at 1:06 PM, TMFMmbop wrote:

    Adina, like most foreign companies, pays dividends in different amounts twice per year. To calculate its yield, Yahoo! simply multiplies the most recent dividend by four and may not be adjusting for the ADR ratio or for currency. In other words, don't trust Yahoo!'s data when it comes to foreign stocks.

  • Report this Comment On February 01, 2010, at 9:36 AM, kimklijsters2 wrote:

    NYSE highest dividend yielding stocks top 100:

    http://www.TopYields.nl/Top-dividend-yields-of-NYSE.php

  • Report this Comment On February 04, 2010, at 2:27 PM, drborst wrote:

    So where can I find more reliable data on foreign stocks? CAPS isn't always right either.

    Also, I've noticed the yearly variable or twice yearly different amounts dividends before. but I can't figure out how the company determines the amount.

    I'm guessing they have a formula. Does this mean I shouldn't be worried about the payout ratio.

    I subscribed to Global Gains hoping to find some explinations of ADRs and Dividend payouts and the value of buying stocks listed in the US vrs those listed on local exchanges, but all I got were some picks based on share price.

  • Report this Comment On February 05, 2010, at 6:16 PM, unlearned wrote:

    careful with emerging markets, China is on the edge of something and we don't know what.

    South America so far has been a good bet, but keep in mind that the dollar is going to rally hard with the current risk with the euro. So, as the dollar gains strength the emerging markets WILL NOT have a high dividend yield, and after paying the ADR fees, and if the dollar does rally then you are holding a foriegn company with devalued dollars.

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