| Is Now the Time for International Investing?By: John Blank
September 21, 2013 |
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The U.S. stock market has been the safe and easy bet the last 4 years. However, as our stock prices ripen and mature, it is time to scour the globe for better opportunities. In fact, it is always a good time to consider putting some of our money to work abroad, given that there are often countries with healthier economic growth and more reasonable valuations.
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This is an article I have wanted to write for quite some time. To share with you all my passion for this style of investing and, more importantly, how you can easily tap into these global markets yourselves to find attractive investment opportunities.
How I Found My World View
Twenty plus years ago, I had earned a mathematics degree, and I was fresh back from a year in Kenya. I had this plan to work on international development. I would live out in the field and study economics. It was a combination of a live ‘big picture’ subject and something technical that got me interested. What if I had studied biochemistry, or became a doctor like my father? I wouldn’t get face-to-face with the big picture. Yet I wanted a similar logic and rigor.
I started out as a professor. Then I moved into jobs that apply international economics. I learned how international tax regimes worked; wrote big picture documents for industry groups; worked for banks; and big global exchanges. I too carefully saved and invested, much like you.
In hindsight, this interest turned towards international investing because the 2008 crisis hit. People started asking me: What is going on?
I explained, with an authority I cobbled together along the way, what big macro forces hit the market. We all learned a hard lesson. Traditional styles of investing, no matter what, can be blown away. You cannot run and hide easily. All serious investors realized they needed a World View. One equipped to fit and guide strategic decisions in an interconnected scene.
With the timing benefit of the Zacks Rank, I am finally ready to truly help.
What’s the most straightforward case to an individual investor for seeking international opportunities?
If you know where to look, returns are big. They can be made reasonably safe with proper monitoring. When U.S. markets turn bearish or range-bound, there are bull markets somewhere. You can build up substantial personal wealth in those periods.
On top of that, the times we live in are turning out to be an especially good time to give a portfolio a big dose of international diversification.
Here’s why:
(1) U.S. Valuations
U.S. stocks are trading at all-time highs. They keep going higher. The last 12 months, prices on U.S. stocks went up much faster than real earnings growth. Meanwhile, non-U.S. regions remain undervalued. An international stock can trade at a discount to a U.S. counterpart doing the same thing. International markets did NOT deliver big returns the last 4 years. Returns could be easily found in U.S. markets. That huge force shifted. It is time to look outside our borders.
(2) Better Top-line Growth
Another incentive for looking abroad is the macro platform. Development is about raising a nation’s wealth. Since the end of Soviet Communism, the market was the policy framework that spread. Results over the last 20 years have been amazing. Foreign economies are now booming several times faster than that of the United States. Consider the economies of Turkey, Russia, Mexico, India and China. They can grow up to 3X faster than domestic GDP.
(3) Dislocations
Dislocation is the bogeyman in international investing. That is shorthand for rapid sell-offs. Small cap stocks share the problem. RISK-OFF and international stocks go out the door first. RISK-ON and it is back to the races. One line speaks volumes: ‘It’s seen one, and seen them all.’ The U.S., the Greeks and India supplied dislocations that went global. Like a hit on Billboard, others are surely on the way. The solution? At the proper moment, monitoring can turn down risk and turn up rewards.
Wrapping Up
When I look upon actual stock picks, I can make a personal case for international investing. It gets back to my original career mission. We learn about major developments anywhere in the world. And participate in a way we couldn’t imagine, with global stock markets.
Examples: No longer Communist, Russia offers a genuine competitor to Google. It has a search engine company of its own that delivers high double-digit earnings growth. Revenues are over $1B already.
What about Communist China? Shanghai just announced a free trade zone. Pharmaceutical companies are being built to rival Eli Lilly. Modern media networks are being scaled to a billion people. Publicly traded shares are available.
What about Africa? I got online yesterday and made a $25 loan to Jesicah in Kenya. She is building a network of chlorine dispensers. They clean potted water. I had collected all $25 from a loan I previously made in Mexico. A family there successfully started a line of natural shampoos.
That is why I do this. We are making progress this way. We can spend our working hours learning how to improve our world and profit from it as well.
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