Cheat Sheet Q&A: Is it time to invest in foreign stocks?
Today's entry: Brian, I appreciate the solid financial information you provide but I do have a request and question for you. You frequently update us on the US stock market but what about foreign stocks? In the wake of the Brexit volatility, concerns about the French election,etc. and when combined with the high values for American stocks, wouldn't this be a good time to consider investing outside of the US - specifically in Europe? If not now when?
Bottom Line: I've been asked this question from time to time since the Brexit vote last summer but it's definitely more common with incredible post-election rally in stocks. My answers to both questions are purely information/analytically based and I'll address those points in a moment but I was reminded of a story that's an antidote of the larger points I'm about to make.
Ashley and I were leaving the B&B we stayed at in Florence, Italy in the summer of 2012. The taxi driver who picked us up to take us to the airport was notably different than other drivers we'd previously encountered in Europe. It was a women who appeared to be in her mid to late 40's, was extremely well put together, well spoken and immediately took in an interest in asking us about geo-political matters when she knew we were Americans. After answering her questions about the US economy and the Presidential election cycle (we were only a few months out from the 2012 Presidential election), I began to inquire about her background. We learned that she was a software engineer - with a master's degree, who'd worked for a major technology company and had been laid off during the recession. When I inquired about how long she'd been driving a taxi - she said it was her first day. Pressing further we found out that the Italian economy was still so weak that after being out of work for over three years, driving a taxi was the only job she could obtain. A software engineer! She said there were plenty of opportunities in Asia and the US but she didn't want to have to leave her family in Italy.
When we arrived at the airport and left the taxi I remember looking at Ashley and saying that's the best/worst example of socialism in action that I'd ever seen. In the US we had and have a shortage of software engineers and it's one of the top paying professions. In Florence she'd become a taxi driver out of necessity. So what does that story have to do with your question? When I tell you that the US stock market is the greatest wealth creation machine in the history of the world. It's not rhetoric. It's fact! At an annual average rate of return of 10% - American publicly traded companies have provided the best historical return on investment period. I could walk you through a bunch of numbers comparing various world market performances to ours but all you really need to know is what you're already aware of. The United States of America became the world's top economy within a 150 years of it's creation. Why? Free markets and capitalism. How long have the economies of England, France & be around? The US economy actually produces more economic output than the entire Euro zone combined!
So is it possible that over any short period of time you might be able to outperform in a specific European market? Sure. But over the long run there's nothing to suggest that it's wise to bank on anything in Europe outperforming our companies. My investment strategy for stocks is quite simple. I play the strengths of what's provided the best return historically. Dividend paying stocks that maintain and raise dividends overtime.
If you have a topic you'd like me to address email me: firstname.lastname@example.org