Reversal of fortune
Making money in the stock market usually takes a lot of hard work and patience. Not so, my winnings toward the end of last summer. That's was easy money -- too easy. Around the middle of August, 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 was much better than 35%.

The biggest and the best
Keep in mind, I wasn't dabbling overly speculative stuff here. As crazy as it got for me was purchasing 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 three months. Even sleepy giant China Unicom (NYSE:CHU) tacked on more than 50% over that period.

Here's what's more amazing: My performance pales next to the gains posted by other big, well-known foreign companies trading on U.S. exchanges.

Company Name

% Gain

Petroleo Brasileiro (NYSE:PBR)

70%

3SBio (NASDAQ:SSRX)

78%

Mobile Telesystems (NYSE:MBT)

55%

Business Objects (NASDAQ:BOBJ)

35%

Chicago Bridge & Iron (NYSE:CBI)

70%

Home Inns & Hotels Management (NASDAQ:HMIN)

39%

*Screening and data from Capital IQ.

And these companies weren't the only ones to make big moves. A couple 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.

U.S.

Foreign

Gain >15%

31.9%

57.5%

Gain >20%

22.3%

48.1%

Gain >30%

11.7%

33.9%

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

More than 400 foreign-based companies -- 58% of the total -- had 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.

Things have settled down a bit since then, but on the higher end of the return scale, your odds of scoring big gains were still much higher with foreign stocks.

U.S.

Foreign

Gain >15%

31.8%

33.3%

Gain >20%

22.3%

28.0%

Gain >30%

11.7%

19.3%

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

Legends of the fall
Figuring out exactly why foreign stocks outperformed like that isn't easy. Personally, 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 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 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 per 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. View his stock holdings and Fool profile here. OMA is a recommendation of Global Gains. Petroleo Brasileiro is an Income Investor pick. Fool rules are here.