The recent rally may have you feeling pretty good about
yourself. After all, Dow members such as
Coca-Cola (NYSE: KO),
United Technologies (NYSE: UTX), and
3M (NYSE: MMM) are all up big this year. If
you're new to the market, you may be thinking that this
stock-picking stuff is
It's not -- and this recent rally cannot continue. It's
not in the nature of U.S. large caps to offer greater than
20% returns in a
year, let alone a few months. This market is
seriously out of whack.
That makes no sense
And although Federal Reserve Chairman Ben
Bernanke has declared the recession "very likely over,"
unemployment still hovers close to 10%, the credit markets
are still anemic, and the government is subsidizing consumer
You may say, "Yeah, but the market is
forward-looking." Sure it is, but it's not
thatforward-looking. Tack on the inflation that's
likely to result from
rampant deficit spendingand, well, tread carefully in
What you can do
It's for these reasons that we continue to
look outside the U.S. for compelling stock ideas at
Motley Fool Global Gains
, and why we're particularly excited about the
opportunities in China, Brazil, India, and Chile.
Stocks in these countries today offer better valuations
relative to their future growth prospects -- and the recent
rally has left many of them behind. And the advantages over
the U.S. aren't necessarily the same from country to
India has a younger workforce; Chile a large budget
surplus and abundant natural resources; China a massive
population with significant personal savings; Brazil a
growing resource economy that is developing stronger and
stronger ties with China. Thus, these countries can hold up
to some degree even as the U.S. falters, although complete
decoupling is unlikely.
Yanglin Soybean , for example, has fallen by
30% this year and now trades for a paltry 0.2 times revenue.
And although the company is struggling to handle rising
soybean prices in China, more important for the long term is
that it's been classified as a key leading enterprise in
agriculture and is helping that country achieve its strategic
goal of becoming food-independent.
But if you look up Yanglin Soybean, you may be scared off.
It trades over the counter, the stock is illiquid, and the
board has no independent directors. There's no way to be sure
that the company cares a lick for outside shareholders.
It's time to take off the training wheels
These are legitimate concerns. But I've
already triedto assuage them. So, today, I point you to
Baupost Group's Seth Klarman's 1997 letter to
I frequently hear the argument that the rules are
different overseas: the accounting murky, the annual
reports unreadable, the currencies sometimes unhedgeable.
All of these points are fair, but, rather than being
arguments to avoid foreign markets, they are instead
arguments to embrace them. After all, as an investor you
never have perfect information, and the biggest profits are
always available (just as they have been in the U.S.) when
competition and information are scarce.
The payoff to fundamental analysis rises
proportionately with the difficulty of performing
Yes, I added that emphasis, because it's such a key point.
Klarman goes on to say that the highest return -- the
realmoney -- is made in markets where information is
scarce and management teams are not yet obviously
The logical conclusion
Think about that and decide what kind of
investor you're willing and able to be. If you're satisfied
with average returns, buy an index fund and enjoy the 5% or
so annual gains you'll reap from core holdings in
Oracle (Nasdaq: ORCL) and
McDonald's (NYSE: MCD). And yes, you're
getting those same kinds of big, staid megacaps even when you
purchase an emerging-markets index fund. Top holdings in
Vanguard's offering are
Petrobras (NYSE: PBR) and
China Life Insurance (NYSE: LFC).
© 2009 UCLICK L.L.C.