Sir John Templeton has been hailed as one of the best investors of the 20th century. Born in rural Tennessee, he later started a mutual fund business that he eventually sold for over $900 million.
So what was his secret?
He was a solid fundamental analyst, but his fortune was built on international investing -- and he was one of the first, riding the Japanese boom of the 1960s.
And it made his clients a lot of money: $10,000 invested in his Templeton Growth Fund at its 1954 inception would be worth around $8.5 million today.
Following in Templeton's footsteps -- and adding one extra twist -- will let you take advantage of the greatest opportunity of the next 91 years.
The party isn't over
At a recent meeting with business-school students in Ontario, Warren Buffett remarked: "The 19th century belonged to England, the 20th century belonged to the U.S., and the 21st century belongs to China. Invest accordingly."
This is coming from another brilliant investor -- one who has spent most of his career focused on strong but unexciting U.S. businesses like furniture stores, carpet producers, and brick makers. If he's bullish on China (and other foreign markets), we should be too.
Why does Buffett like foreign stocks? It's simple, really. Much of the rest of the world is moving up the industrialization curve -- and therefore growing faster than we are. Here's an example for you: The United States has 300 million people and about 6,000 airplanes to serve them. China has more than four times as many people but only 1,000 planes in the whole country -- leaving lots of room for explosive growth.
And it's not as risky as you think.
Same risk, different place
Some investors are leery of foreign stocks because they're perceived as riskier -- but while some companies subject investors to high risk, every stock has to be evaluated on its own merits.
After all, Buffett -- who is notoriously risk-averse -- has invested in Chinese and Korean companies, yet hasn't touched high-tech domestic firms like Cisco Systems
And what's to say U.S. stocks aren't risky? Citigroup
Dividends to the rescue
One way to mitigate your risk substantially is to find solid companies that pay a dividend. By paying a dividend, management shows that it is:
- Confident in future cash flows and
- Committed to giving back returns to shareholders
If you know that cash flows will be stable or growing in the future -- and that you will get a chunk of those cash flows every year -- that makes for a pretty compelling investment.
Many foreign companies not only pay stable and growing dividends, but have delivered market-beating performance over the past five years, crushing their U.S. counterparts in the process. Two incredible examples: Oil tanker operator Frontline
The Foolish bottom line
Foreign dividend payers combine the outsize potential of overseas investments with the stability of income stocks -- and that gives you an unparalleled opportunity to profit.
James Early and Andy Cross, lead advisors for our Motley Fool Income Investor service, agree. Of their past 12 picks, fully eight were foreign companies that dominate their markets and pack tremendous growth potential.
You can get the names of these eight companies -- along with all of their best bets for new money now -- with a 30-day free trial. Click here to get started -- there's no obligation to subscribe.
Motley Fool analyst Andrew Sullivan loves dividends, foreign stocks, and owns Apple shares, but does not have a financial position in any of the other stocks mentioned in this article. Apple is a Motley Fool Stock Advisor recommendation. Lan Airlines is an Income Investor selection. Google is a Rule Breakers pick. HDFC Bank is a Global Gains recommendation. The Motley Fool has a disclosure policy.
