Reversal of fortune
Making money in the stock market usually takes a lot of hard work and patience. Not so as it pertains to my winnings over the past couple of months. That's been easy money -- too easy.
About 10 weeks ago, 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 gain on those investments is much better than 35%.
The biggest and the best
Keep in mind that I wasn't dabbling in overly speculative stuff here. As crazy it got for me was purchasing China Mobile
Here's what's truly amazing: My performance pales next to the gains posted over the past 10 weeks by other big, well-known foreign companies trading on U.S. exchanges.
|
Company Name |
Market Cap |
Change Since Mid-August |
|---|---|---|
|
China
Finance Online |
$640 |
273% |
|
Yingli Green Energy |
$4,610 |
171% |
|
Baidu.com |
$13,700 |
128% |
|
Sohu.com |
$2,340 |
103% |
|
Sterlite Industries India |
$16,980 |
86% |
And these companies weren't the only ones making big moves. When I 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 astounded by what I found.
|
U.S. |
Foreign |
|
|---|---|---|
|
Gain >15% |
31.9% |
57.5% |
|
Gain >20% |
22.3% |
48.1% |
|
Gain >30% |
11.7% |
33.9% |
More than 400 foreign-based companies -- 58% of the total -- posted gains of 15% or better. That's hundreds 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 like that isn't easy. I look to that big August swoon. While overall markets were tanking, for some reason, 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 was claw their way back, and there would be great gains.
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 that investment in foreign cash flows and global commodity producers makes an awful lot of sense.
Foolish bottom line
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. (I took a little off the table for just that reason.)
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-10 CAPS player, had shares of OMA but no positions in any other company mentioned here. See his latest CAPS blog commentary here. OMA and Sterlite are recommendations of Global Gains. China Mobile is a former Global Gains pick. Baidu.com is a Rule Breakers recommendation. View Seth's stock holdings and Fool profile here. Fool rules are here.
